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Aligned with
Opportunity
2013 ANNUAL REPORT

Table of contents

  • Page 1
    Opportunity 2013 ANNUAL REPORT Aligned with

  • Page 2
    Financial Highlights Unum Group 2013 2012 2011 2010 2009 Income Per Share(1) After-tax Operating Income(2) Net Realized Investment Gain (Loss) Non-operating Retirement-related Loss Unclaimed Death Benefits Reserve Increase, Net of Tax Group Life Waiver of Premium Benefit Reserve Reduction, ...

  • Page 3
    ... and sound expense management driving another good year for this business. And Unum UK showed nice improvement over 2012 as the re-pricing and re-positioning actions in our group life business began to have a positive impact on our results. Thomas R. Watjen President and Chief Executive Officer

  • Page 4
    ...ts we offer. As the year progressed, however, we saw improving sales trends. In addition, our Closed Block segment - consisting of legacy products such as long-term care insurance that we no longer sell but still service - continues to adversely impact our overall returns. Last year we substantially...

  • Page 5
    UNUM 2013 ANNUAL REPORT / 3 ALIGNING FOR THE FUTURE As I mentioned earlier, one of the greatest challenges for all financial services companies is finding profitable long-term growth opportunities. We can always find revenue growth, but it often comes with a price we're not prepared to pay: ...

  • Page 6
    4 / UNUM 2013 ANNUAL REPORT build from its rich history - through new product and service offerings, through continued enhancements to its operating platform to better leverage its significant scale advantage, and through maintaining a culture where everyone takes pride in doing the right thing to...

  • Page 7
    UNUM 2013 ANNUAL REPORT / 5 and deepening our leadership team, creating succession plans to maintain continuity and consistency in our performance, developing talent from within but also providing opportunities for those from the outside who can bring new insights and perspectives to the company, ...

  • Page 8
    6 / UNUM 2013 ANNUAL REPORT An Opportunity to Expand Financial Protection The pressing need for financial protection, changing marketplace, and the increasing role employees play in selecting and paying for products.

  • Page 9
    ... rather than hoping against them. With government programs on both sides of the Atlantic stretching fewer resources further and further, the responsibility for building a personal financial safety net lands squarely on individuals. Employers play a critical role in offering meaningful benefits to...

  • Page 10
    8 / UNUM 2013 ANNUAL REPORT Understanding and Serving Consumers Making essential financial protection benefits accessible to more people means constantly developing our understanding of consumer needs and decision-making. Individuals are increasingly asked to choose whether to enroll in benefits...

  • Page 11
    ... Increasing the ï¬,exibility, agility, and simplicity of our systems will allow us to quickly respond to market demand. It's exciting to see our progress in building a more nimble, consumerfocused environment." Chris Jerome, Executive Vice President, Global Services "Information technology is a key...

  • Page 12
    10 / UNUM 2013 ANNUAL REPORT A Financial Foundation for the Future Through the economic headwinds we've faced over the last several years, our ability to deliver consistent results has not wavered. A prudent investment strategy and a singular focus on meeting the financial protection needs of ...

  • Page 13
    UNUM 2013 ANNUAL REPORT / 11 This ï¬,exibility means we can enhance our service to customers through investments in technology, product development and our people. And customers benefit from our financial strength, knowing we'll be here when they need us. Our capital management strategy also ...

  • Page 14
    12 / UNUM 2013 ANNUAL REPORT The Enduring Value of Discipline While we are deeply committed to growing our markets and our business, that growth will never come at the price ...

  • Page 15
    ... customer experience that is second to none." Peter O'Donnell, President and CEO, Unum UK Sometimes that means difficult decisions about walking away from business or holding firm on pricing, despite intense pressures from competitors. Those decisions aren't easy, but they are part of our culture...

  • Page 16
    14 / UNUM 2013 ANNUAL REPORT A Strong Business Starts with a Strong Team Unum's employees are our brand, and they live the promise of that brand every day. They live it through their diligent delivery on our company's promise to help people when they need it most.

  • Page 17
    UNUM 2013 ANNUAL REPORT / 15 Their expertise, energy, and passion for what they do have made us an industry leader and an employer known for a thriving workplace culture. This culture is one reason Unum is one of Forbes' 100 most trustworthy companies, a Best Place to work in Insurance, and a Best...

  • Page 18
    ... J. Jerome Executive Vice President, Global Services Jack F. McGarry President and Chief Executive Officer, Closed Block Operations Richard P. McKenney Executive Vice President and Chief Financial Officer Peter O'Donnell President and Chief Executive Officer, Unum UK Michael Q. Simonds President...

  • Page 19
    ... 2013 ANNUAL REPORT / 17 2013 Financial Review Unum Group 18 Selected Financial Data 20 Management's Discussion and Analysis of Financial Condition and Results of Operations 80 Quantitative and Qualitative Disclosures About Market Risk 88 Consolidated Balance Sheets 90 Consolidated Statements...

  • Page 20
    18 / UNUM 2013 ANNUAL REPORT Selected Financial Data At or for the Year Ended December 31 (in millions of dollars, except share data) 2013 2012 2011 2010 2009 Income Statement Data Revenue Premium Income Net Investment Income Net Realized Investment Gain (Loss) Other Income Total Benefits and ...

  • Page 21
    ... 2011 related to our long-term care closed block business and a reserve increase of $183.5 million in 2011 related to our individual disability closed block business. See Note 6 of the "Notes to Consolidated Financial Statements" contained herein for further discussion. (2) Includes the net increase...

  • Page 22
    ... stock. See additional information in "2013 Unclaimed Death Benefits Reserve Increase," "2013 Group Life Waiver of Premium Benefit Reserve Reduction," "Consolidated Operating Results," and "Reconciliation of Non-GAAP Financial Measures" contained herein. Our Unum US segment reported an increase...

  • Page 23
    ...fit (group life waiver) provides for continuation of life insurance coverage when an insured, or the employer on behalf of the insured, is no longer paying premium because the employee is not actively at work due to a disability. The group life waiver claim reserve is the present value of future...

  • Page 24
    ...the insured is disabled. During the fourth quarter of 2013, we completed a review of our assumptions and modified our mortality and claim recovery assumptions for our Unum US group life waiver reserves and, as a result, reduced the applicable claim reserves by $85.0 million and increased net income...

  • Page 25
    UNUM 2013 ANNUAL REPORT / 23 2011 Claim Reserve Increase for Individual Disability Closed Block Business Claim reserves supporting our individual disability closed block of business are calculated using assumptions based on actual experience believed to be currently appropriate. Claim reserves are ...

  • Page 26
    ...ts 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 individual disability, long-term care, and other products in our Closed Block segment. The reserves are calculated based on...

  • Page 27
    ... of the expected future claims and claim expenses we will pay and the expected future premiums we will receive, with a provision for profit allowed. Policy reserves for our Closed Block segment include certain older policy forms for individual disability, individual and group long-term care, and...

  • Page 28
    26 / UNUM 2013 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations Claim reserves supporting our Unum US group and individual disability product lines and our Closed Block individual disability and individual and group long-term care product lines ...

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

  • Page 30
    .../ UNUM 2013 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations Key Assumptions 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...

  • Page 31
    ..., the claim resolution rates, primarily as pertaining to life expectancy of the insured, remained relatively consistent during 2013 and 2012 with the mortality assumptions for this particular claim block that we updated in 2011. See "2011 Claim Reserve Increase for Individual Disability Closed Block...

  • Page 32
    ...variance for both the Unum US group long-term disability line of business and the Closed Block individual disability line of business is the claim resolution rate. In addition, we consider variability in our reserve assumptions related to long-term care policy reserves. These reserves are held under...

  • Page 33
    ...) Unum US Group Disability Group Life and Accidental Death & Dismemberment Supplemental and Voluntary: Individual Disability - Recently Issued Voluntary Benefits Unum UK Group Disability Group Life Supplemental Colonial Life Accident, Sickness, and Disability Life Cancer and Critical Illness...

  • Page 34
    32 / UNUM 2013 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations 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 ...

  • Page 35
    ... to the contractual terms of the loan agreement. We establish an allowance for probable losses on mortgage loans based on a review of individual loans, considering the value of the underlying collateral, the value of which is periodically assessed. Mortgage loans are not reported at fair value...

  • Page 36
    ... best estimate of future expected experience. Major assumptions used in accounting for these plans include the expected discount (interest) rate and the long-term rate of return on plan assets. We also use, as applicable, expected increases in compensation levels and a weighted average annual rate...

  • Page 37
    ... reviews. Risk tolerance is established through consideration of plan liabilities, plan funded status, and corporate financial condition. The long-term rate of return on asset assumption used in the net periodic pension costs for our U.S. qualified defined benefit pension plan for 2014 and 2013...

  • Page 38
    ... We discontinued offering retiree life insurance to future retirees effective December 31, 2012. We will still provide this benefit to those employees who retired prior to December 31, 2012. The fair value of plan assets in our U.K. pension plan was £136.4 million at December 31, 2013, compared to...

  • Page 39
    UNUM 2013 ANNUAL REPORT / 37 Income Taxes We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. In 2011, as part of an Internal Revenue Service (IRS) settlement, we released a $4.1 million valuation allowance related to basis ...

  • Page 40
    38 / UNUM 2013 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated Operating Results Year Ended December 31 (in millions of dollars) 2013 % Change 2012 % Change 2011 Revenue Premium Income Net Investment Income Net Realized Investment ...

  • Page 41
    ... our tax credit partnerships, and lower income on our Unum UK inï¬,ation index-linked bonds. These declines were mostly offset by a higher level of invested assets, higher bond call premiums, an increase in income from private equity partnership investments, and higher prepayment income on mortgage...

  • Page 42
    ... management were increased costs for our pension and other postretirement benefit plans in 2012 as compared to 2011. For further discussion of the 2013 pension plan amendments, see Note 9 in the "Notes to Consolidated Financial Statements" contained herein. Our income tax for 2013, 2012, and 2011...

  • Page 43
    ... Reserve Increase, Net of Tax Group Life Waiver of Premium Benefit Reserve Reduction, Net of Tax Deferred Acquisition Costs Impairment and Reserve Charges for Long-term Care Closed Block, Net of Tax Reserve Charge for Individual Disability Closed Block, Net of Tax Tax Reduction from IRS Settlement...

  • Page 44
    ... 31 (in millions) 2013 % Change 2012 % Change 2011 Unum US Unum UK Colonial Life $745.6 £ 48.4 $367.6 (2.0)% (18.7)% 1.6% $760.5 £ 59.5 $361.9 7.5% (5.1)% (1.1)% $707.3 £ 62.7 $365.9 Sales shown in the preceding chart generally represent the annualized premium income on new sales which we...

  • Page 45
    UNUM 2013 ANNUAL REPORT / 43 Unum US Segment 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, which are comprised of individual disability - recently issued...

  • Page 46
    ... of dollars, except ratios) 2013 % Change 2012 % Change 2011 Operating Revenue Premium Income Group Long-term Disability Group Short-term Disability Total Premium Income Net Investment Income Other Income Total Benefits and Expenses Benefits and Change in Reserves for Future Benefits Commissions...

  • Page 47
    UNUM 2013 ANNUAL REPORT / 45 Year Ended December 31, 2013 Compared with Year Ended December 31, 2012 Premium income increased slightly in 2013 compared to 2012 primarily due to growth from rate increases, partially offset by a decline in persistency in the group long-term disability product line. ...

  • Page 48
    ...of dollars, except ratios) 2013 % Change 2012 % Change 2011 Operating Revenue Premium Income Group Life Accidental Death & Dismemberment Total Premium Income Net Investment Income Other Income Total Benefits and Expenses Benefits and Change in Reserves for Future Benefits Commissions Deferral of...

  • Page 49
    ... lower income from bond call premiums, partially offset by an increase in investment income attributable to tax credit partnerships and the level of invested assets. Risk results were favorable compared to 2012 primarily as a result of the previously discussed reserve reduction for group life waiver...

  • Page 50
    ..., except ratios) 2013 % Change 2012 % Change 2011 Operating Revenue Premium Income Individual Disability - Recently Issued Voluntary Benefits Total Premium Income Net Investment Income Other Income Total Benefits and Expenses Benefits and Change in Reserves for Future Benefits Commissions...

  • Page 51
    ... income attributable to tax credit partnerships, and higher income from bond call premiums, partially offset by a decline in the yield on invested assets. Risk results for the individual disability - recently issued product line were favorable during 2013 compared to 2012 due to higher claim...

  • Page 52
    ...UNUM 2013 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations Sales Year Ended December 31 (in millions of dollars) 2013 % Change 2012 % Change 2011 Sales by Product Group Disability and Group Life and AD&D Group Long-term Disability Group Short-term...

  • Page 53
    ... by impacting net investment income yields and claim reserve discount rates. As a result of the continued low interest rate environment and the aging of insureds, we began initiating price increases for our group disability products during 2012 and will continue with these pricing levels on new and...

  • Page 54
    ... of dollars, except ratios) 2013 % Change 2012 % Change 2011 Operating Revenue Premium Income Group Long-term Disability Group Life Supplemental Total Premium Income Net Investment Income Other Income Total Benefits and Expenses Benefits and Change in Reserves for Future Benefits Commissions...

  • Page 55
    ...pounds, except ratios) 2013 % Change 2012 % Change 2011 Operating Revenue Premium Income Group Long-term Disability Group Life Supplemental Total Premium Income Net Investment Income Other Income Total Benefits and Expenses Benefits and Change in Reserves for Future Benefits Commissions Deferral...

  • Page 56
    ...invested assets. We also reported lower income from inï¬,ation index-linked bonds which we invest in to support the claim reserves associated with certain of our group policies that provide for inï¬,ation-linked increases in benefits. Group long-term disability risk results were unfavorable in 2013...

  • Page 57
    UNUM 2013 ANNUAL REPORT / 55 Sales Shown below are sales results in dollars and in pounds for the Unum UK segment. Year Ended December 31 (in millions) 2013 % Change 2012 % Change 2011 Sales by Product Group Long-term Disability Group Life Supplemental Total Sales Sales by Market Sector Group Long...

  • Page 58
    56 / UNUM 2013 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations Segment Outlook Our primary focus during 2014 is to build key capabilities to enable us to deliver future growth. Our shift in business mix and focus on premium rate increases for both...

  • Page 59
    ...except ratios) 2013 % Change 2012 % Change 2011 Operating Revenue Premium Income Accident, Sickness, and Disability Life Cancer and Critical Illness Total Premium Income Net Investment Income Other Income Total Benefits and Expenses Benefits and Change in Reserves for Future Benefits Commissions...

  • Page 60
    ...management. Sales Year Ended December 31 (in millions of dollars) 2013 % Change 2012 % Change 2011 Sales by Product Accident, Sickness, and Disability Life Cancer and Critical Illness Total Sales Sales by Market Sector Commercial Core Market (< 1,000 lives) Large Case Market Subtotal Public Sector...

  • Page 61
    .... The number of new accounts decreased 18.2 percent in 2013 compared to 2012, while the average new case size increased 20.0 percent. Colonial Life's sales were lower in 2012 relative to 2011, with a decrease in new account sales partially offset by an increase in existing account sales. Commercial...

  • Page 62
    ... and key performance indicators for the Closed Block segment. Year Ended December 31 (in millions of dollars, except ratios) 2013 % Change 2012 % Change 2011 Operating Revenue Premium Income Individual Disability Long-term Care All Other Total Premium Income Net Investment Income Other Income Total...

  • Page 63
    ...-term care certificates on inforce cases. We continue to file requests with various state insurance departments for premium rate increases on certain of our individual and group long-term care policies. The rate increases reï¬,ect current interest rates and claim experience, higher expected future...

  • Page 64
    62 / UNUM 2013 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations Segment Outlook Operating revenue and income for this segment will continue to decline over time as these closed blocks of business wind down, although we do expect additional premium ...

  • Page 65
    UNUM 2013 ANNUAL REPORT / 63 Year Ended December 31, 2012 Compared with Year Ended December 31, 2011 Net investment income was lower in 2012 compared to 2011 due to lower asset levels, a lower proportion of assets invested at long-term interest rates, a decrease in bond call premiums, and a ...

  • Page 66
    ... our tax credit partnerships, and lower income on our Unum UK inï¬,ation index-linked bonds. These declines were mostly offset by a higher level of invested assets, higher bond call premiums, an increase in income from private equity partnership investments, and higher prepayment income on mortgage...

  • Page 67
    ... of fixed maturity securities during 2013 or 2011. During 2012, we recognized a loss of $11.2 million on the sale of securities issued by a large U.S. department store chain. In 2011, the company's management was replaced by a new team of executives that embarked on a radically different retailing...

  • Page 68
    66 / UNUM 2013 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations... Gas) Financial Institutions Mortgage/Asset-Backed Sovereigns Technology Transportation U.S. Government Agencies and Municipalities Public Utilities Redeemable Preferred Stocks Total $...

  • Page 69
    UNUM 2013 ANNUAL REPORT / 67 The following two tables show the length of time our investment-grade and below-investment-grade fixed maturity securities had been in a gross unrealized loss position as of December 31, 2013 and at the end of the prior four quarters. The relationships of the current ...

  • Page 70
    68 / UNUM 2013 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations At December 31, 2013, we had minimal exposure to investments for which the payment of interest and principal is guaranteed under a financial guaranty insurance policy, and all such ...

  • Page 71
    ... is largely mitigated because our holdings in these countries are non-financial and operate in defensive industries that provide essential services. Most are market leaders with access to diverse, global capital markets. Current developments regarding ratings downgrades, bailout packages, or higher...

  • Page 72
    ... our insurance subsidiaries. Premium and investment income, as well as maturities 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...

  • Page 73
    ...) with Unum Group as the ultimate parent. The captive reinsurers are all domiciled in the United States as of December 31, 2013. The ability of Northwind Re, Tailwind Re, and UPIL to pay dividends to their respective parent companies will depend on their satisfaction of applicable regulatory...

  • Page 74
    ...UNUM 2013 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations Unum Group and/or certain of its intermediate holding company subsidiaries may also receive dividends from our U.K. subsidiaries, the payment of which may be subject to applicable insurance...

  • Page 75
    ...Northwind Re to pay dividends to Northwind Holdings will depend on its satisfaction of applicable regulatory requirements and on the performance of the reinsured claims of Provident, Paul Revere and Unum America (the ceding insurers) reinsured by Northwind Re. None of Unum Group, the ceding insurers...

  • Page 76
    74 / UNUM 2013 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations In 2005, Unum Group repatriated $454.8 million in unremitted foreign earnings from its U.K. subsidiaries, and as part of its repatriation plan, UnumProvident Finance Company plc, a ...

  • Page 77
    ... to these plans. See Note 9 of the "Notes to Consolidated Financial Statements" and "Critical Accounting Estimates" contained herein for additional information. Miscellaneous liabilities include commissions due and accrued, deferred compensation liabilities, state premium taxes payable, amounts due...

  • Page 78
    76 / UNUM 2013 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations Off-Balance Sheet Arrangements Operating leases include noncancelable obligations on certain office space, equipment, and software. Purchase obligations include non-binding ...

  • Page 79
    ... change in insurance reserves and liabilities and change in income tax adjustments to reconcile net income to net cash provided by operating activities for 2011 compared to 2013 and 2012 was due primarily to the 2011 charges for our long-term care and individual disability closed blocks of business...

  • Page 80
    ... Unum Group and the financial strength ratings for each of our traditional insurance subsidiaries as of the date of this filing. AM Best Fitch Moody's S&P Issuer Credit Ratings Financial Strength Ratings Provident Life and Accident Provident Life and Casualty Unum Life of America First Unum Life...

  • Page 81
    UNUM 2013 ANNUAL REPORT / 79 On January 30, 2013 and again on December 8, 2013, AM Best affirmed its A rating of Unum Group's primary domestic insurance subsidiaries and affirmed the bbb issuer credit rating for Unum Group. AM Best's outlook for all ratings is "stable." On February 11, 2013 and ...

  • Page 82
    ... and short-term investments. Fixed maturity securities include U.S. and foreign government bonds, securities issued by government agencies, public utility bonds, corporate bonds, mortgage-backed securities, and redeemable preferred stock, all of which are subject to risk resulting from interest rate...

  • Page 83
    ... 2013 ANNUAL REPORT / 81 Although our policy benefits are primarily in the form of claim payments and we therefore have minimal exposure to the policy withdrawal risk associated with deposit products such as individual life policies or annuities, the fair values of liabilities under all insurance...

  • Page 84
    ... 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 Deferred Acquisition Costs (2) Long-term Debt Derivatives (1) Swaps Embedded Derivative in...

  • Page 85
    ... rates for 2013 and 2012, before-tax operating income, as reported in U.S. dollars would have decreased approximately $14.3 million and $12.6 million, respectively, for the years then ended. Dividends paid by Unum Limited are generally held at our U.K. finance subsidiary or our U.K. holding company...

  • Page 86
    84 / UNUM 2013 ANNUAL REPORT Quantitative and Qualitative Disclosures About Market Risk Risk Management Effectively taking and managing risks is essential to the success of our Company. To facilitate this effort, we have a formal Enterprise Risk Management (ERM) program, with a framework comprising...

  • Page 87
    UNUM 2013 ANNUAL REPORT / 85 Business units are primarily responsible for managing their principal risks. Our risk committees and other management committees serve risk and control functions responsible for providing risk oversight, or the second line of risk control. The internal audit team ...

  • Page 88
    ... emerging risks and analyze how material future risks might affect us. Knowing the potential risks we face allows us to monitor and manage their potential effects including adjusting our strategies as appropriate and holding capital levels which provide financial ï¬,exibility. Risk committees have...

  • Page 89
    ... set of investment policies and guidelines, including fundamental credit analysis, that are used to manage our credit risk exposure and diversify our risks across asset classes and issuers. • Finally, we foster a risk culture that embeds our corporate values and our code of conduct in our daily...

  • Page 90
    88 / UNUM 2013 ANNUAL REPORT Consolidated Balance Sheets December 31 (in millions of dollars) 2013 2012 Assets Investments Fixed Maturity Securities - at fair value (amortized cost: $38,289.6; $37,751.5) Mortgage Loans Policy Loans Other Long-term Investments Short-term Investments Total ...

  • Page 91
    UNUM 2013 ANNUAL REPORT / 89 December 31 (in millions of dollars) 2013 2012 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-...

  • Page 92
    90 / UNUM 2013 ANNUAL REPORT Consolidated Statements of Income Year Ended December 31 (in millions of dollars, except share data) 2013 2012 2011 Revenue Premium Income Net Investment Income Realized Investment Gain (Loss) Other-Than-Temporary Impairment Loss on Fixed Maturity Securities Other Net ...

  • Page 93
    UNUM 2013 ANNUAL REPORT / 91 Consolidated Statements of Comprehensive Income Year Ended December 31 (in millions of dollars) 2013 2012 2011 Net Income Other Comprehensive Income (Loss) Change in Net Unrealized Gain on Securities Before Adjustment (net of tax expense (benefit) of $(1,102.8); $467...

  • Page 94
    92 / UNUM 2013 ANNUAL REPORT Consolidated Statements of Stockholders' Equity Year Ended December 31 (in millions of dollars) 2013 2012 2011 Common Stock Balance at Beginning of Year Common Stock Activity Retirement of Repurchased Common Shares Balance at End of Year Additional Paid-in Capital ...

  • Page 95
    UNUM 2013 ANNUAL REPORT / 93 Consolidated Statements of Cash Flows Year Ended December 31 (in millions of dollars) 2013 2012 2011 Cash Flows from Operating Activities Net Income Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Change in Receivables Change in ...

  • Page 96
    94 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements Note 1. Significant Accounting Policies Basis of Presentation: The accompanying consolidated financial statements of Unum Group and its subsidiaries (the Company) have been prepared in accordance with U.S. generally accepted ...

  • Page 97
    ... million of policy loans ceded to reinsurers at December 31, 2013 and 2012, respectively. Other Long-term Investments: Other long-term investments are comprised primarily of tax credit partnerships and private equity partnerships. Tax credit partnerships in which we have invested were formed for the...

  • Page 98
    96 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements Short-term Investments: Short-term investments are carried at cost. Short-term investments include investments maturing within one year, such as corporate commercial paper and U.S. Treasury bills, bank term deposits, and other ...

  • Page 99
    ... in accordance with our accounting policies for deferred acquisition costs. Loss recognition is performed on an annual basis, or more frequently if appropriate, using best estimate assumptions as to future experience as of the date of the test. Insurance contracts are grouped for each major product...

  • Page 100
    ...balances. Reserves for Policy and Contract Benefits: Policy reserves represent future policy and contract benefits for claims not yet incurred. Policy reserves for traditional life and accident and health products are determined using the net level premium method. The reserves are calculated based...

  • Page 101
    UNUM 2013 ANNUAL REPORT / 99 Claim reserves represent future policy and contract benefits for claims that have been incurred or are estimated to have been incurred but not yet reported to us. Our claim reserves relate primarily to disability policies and are calculated based on assumptions as to ...

  • Page 102
    ... / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements Reinsurance activity is accounted for on a basis consistent with the terms of the reinsurance contracts and the accounting used for the original policies issued. Premium income and benefits and change in reserves for future bene...

  • Page 103
    UNUM 2013 ANNUAL REPORT / 101 Accounting Updates Adopted in 2013: Accounting Standards Codification (ASC) 210 "Balance Sheet - Disclosures about Offsetting Assets and Liabilities." In December 2011, the Financial Accounting Standards Board (FASB) issued an update requiring additional disclosures ...

  • Page 104
    102 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements ASC 860 "Transfers and Servicing." In April 2011, the FASB issued an update to revise the criteria for assessing effective control for repurchase agreements and other agreements that both entitle and obligate a transferor ...

  • Page 105
    UNUM 2013 ANNUAL REPORT / 103 Note 2. 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,...

  • Page 106
    104 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements Miscellaneous Long-term Investments: Carrying amounts for tax credit partnerships equal the unamortized balance of our contractual commitments and approximate fair value. Fair values for private equity partnerships are ...

  • Page 107
    .../supply • Sector and issuer level spreads • 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...

  • Page 108
    106 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements The management of our investment portfolio includes establishing pricing policy and reviewing the reasonableness of sources and inputs used in developing pricing. We review all prices obtained to ensure they are consistent ...

  • Page 109
    UNUM 2013 ANNUAL REPORT / 107 At December 31, 2013, approximately 6.0 percent of our fixed maturity securities ... 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...

  • Page 110
    ... 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 111
    ... 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 112
    ... 3 Transfers Earnings Income or Loss Purchases Sales Into Out of (in millions of dollars) Beginning of Year End of Year Fixed Maturity Securities States, Municipalities, and Political Subdivisions Foreign Governments Public Utilities Mortgage/Asset-Backed Securities All Other Corporate Bonds...

  • Page 113
    ... Level 3 Transfers Earnings Income or Loss Purchases Sales Into Out of End of Year Fixed Maturity Securities States, Municipalities, and Political Subdivisions Foreign Governments Public Utilities Mortgage/Asset-Backed Securities All Other Corporate Bonds Redeemable Preferred Stocks Total Fixed...

  • Page 114
    .../Weighted Average Fixed Maturity Securities States, Municipalities, and Political Subdivisions - Private Public Utilities Mortgage/Asset-Backed Securities - Private All Other Corporate Bonds - Private $142.7 Comparability Adjustment (b) 0.25%-1.25%/0.65% 64.3 0.5 Volatility of Credit Discount...

  • Page 115
    ...20%/0.20% (c) 5.74%-5.84%/5.81% Public Utilities Mortgage/Asset-Backed Securities - Private All Other Corporate Bonds - Private 17.4 0.5 391.8 Change in Benchmark Reference Comparability Adjustment Discount for Size Lack of Marketability Volatility of Credit Market Convention Change in Benchmark...

  • Page 116
    ... (in millions of dollars) 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...

  • Page 117
    ...millions of dollars) Fair Value Fair Value 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 Total Fixed Maturity Securities $ 41.1 412...

  • Page 118
    116 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements The following is a distribution of the maturity dates for fixed maturity securities. The maturity dates have not been adjusted for possible calls or prepayments. December 31, 2013 Total Amortized (in millions of dollars) Cost...

  • Page 119
    ... of GAAP was $470.8 million, comprised of $309.5 million of tax credit partnerships and $161.3 million of private equity partnerships. These variable interest entity investments are reported as other long-term investments in our consolidated balance sheets. Additionally, we recognize a liability for...

  • Page 120
    118 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements We are the sole beneficiary of a special purpose entity which is consolidated under the provisions of GAAP. This entity is a securitized asset trust containing a highly rated bond for principal protection and a private equity...

  • Page 121
    ... quality ratings on an annual basis. This review process is performed more frequently for mortgage loans deemed to have a higher risk of delinquency. Mortgage loans, sorted by the applicable credit quality indicators, are as follows: December 31 (in millions of dollars) 2013 2012 Internal Rating Aa...

  • Page 122
    120 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements There have been no changes to our accounting policies or methodology from the prior period regarding estimating the allowance for credit losses on our mortgage loans. The activity in the allowance for credit losses is as ...

  • Page 123
    UNUM 2013 ANNUAL REPORT / 121 At December 31, 2013, we held no mortgage loans that were greater than 90 days past due regarding principal and/or interest payments. At December 31, 2012, we held one mortgage loan that was greater than 90 days past due and for which we had discontinued the accrual of...

  • Page 124
    122 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements Shown below are our financial instruments that either meet the accounting requirements that allow them to be offset in our balance sheets or that are subject to an enforceable master netting arrangement or similar agreement. ...

  • Page 125
    UNUM 2013 ANNUAL REPORT / 123 Net Investment Income Net investment income reported in our consolidated statements of income is as follows: Year Ended December 31 (in millions of dollars) 2013 2012 2011 Fixed Maturity Securities Derivative Financial Instruments Mortgage Loans Policy Loans Other ...

  • Page 126
    ...xed income securities, and credit default swaps. Transactions hedging interest rate risk are primarily associated with our 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...

  • Page 127
    ...in which we agree with another party to pay, at specified intervals, a fixed-rate fee in exchange for insurance against a credit event on a specific investment. If a defined credit event occurs, our counterparty may either pay us a net cash settlement or we may surrender the specific investment...

  • Page 128
    126 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements Cash Flow Hedges As of December 31, 2013 and 2012, we had $630.4 million and $508.8 million, respectively, notional amount of receive fixed, pay fixed, open current and forward foreign currency swaps to hedge fixed income ...

  • Page 129
    ...We had no open credit default swaps as of December 31, 2012. We have an embedded derivative in a modified coinsurance arrangement for which we include in our realized investment gains and losses a calculation intended to estimate the value of the option of our reinsurance counterparty to cancel the...

  • Page 130
    ... table summarizes the location of gains and losses on our derivatives not designated as hedging instruments, as reported in our consolidated statements of income. Year Ended December 31 (in millions of dollars) 2013 2012 2011 Net Realized Investment Gain (Loss) Credit Default Swaps Embedded...

  • Page 131
    UNUM 2013 ANNUAL REPORT / 129 Note 5. Accumulated Other Comprehensive Income Components of our accumulated other comprehensive income, after tax, and related changes are as follows: Net Unrealized Gain on Securities Foreign Currency Translation Adjustment Unrecognized Pension and Postretirement ...

  • Page 132
    ... / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements Amounts reclassified from accumulated other comprehensive income were recognized in our consolidated statements of income as follows: (in millions of dollars) Year Ended December 31, 2013 Net Unrealized Gain on Securities Net...

  • Page 133
    ... 2013 in the Unum US group long-term disability product line were less favorable than the level of 2012, though still above the level of our long-term assumptions. 2013 Unclaimed Death Benefits Reserve Increase Beginning in 2011, a number of state regulators began requiring insurers to cross-check...

  • Page 134
    ...fit (group life waiver) provides for continuation of life insurance coverage when an insured, or the employer on behalf of the insured, is no longer paying premium because the employee is not actively at work due to a disability. The group life waiver claim reserve is the present value of future...

  • Page 135
    UNUM 2013 ANNUAL REPORT / 133 2011 Claim Reserve Increase for Individual Disability Closed Block Business In December 2011, we analyzed our reserve assumptions for individual disability closed block claim reserves. Claim resolution rates, which measure the resolution of claims from recovery, deaths...

  • Page 136
    ... UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements Note 7. Income Tax Total income tax expense (benefit) is allocated as follows: 2013 Year Ended December 31 2012 (in millions of dollars) 2011 Net Income Stockholders' Equity - Additional Paid-in Capital Stock-Based Compensation...

  • Page 137
    UNUM 2013 ANNUAL REPORT / 135 Our net deferred tax liability consists of the following. Certain prior year amounts have been reclassified to conform to current year reporting. December 31 (in millions of dollars) 2013 2012 Deferred Tax Liability Deferred Acquisition Costs Fixed Assets Invested ...

  • Page 138
    ...of items with the Internal Revenue Service (IRS). We file federal and state income tax returns in the United States and in foreign jurisdictions. We are under continuous examination by the IRS with regard to our U.S. federal income tax returns. During 2013, our appeal of tax years 2005 and 2006 was...

  • Page 139
    ... had no net operating loss carryforward for U.S. income taxes. We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. As of December 31, 2013 and 2012, we had no valuation allowance. In 2011, as part of an IRS settlement, we released...

  • Page 140
    ... and the dividends and distributions on such capital stock, and (c) Northwind Holdings' rights under the transaction documents related to the Northwind notes to which Northwind Holdings is a party. At December 31, 2013, the amount in the DSCA was $7.4 million. None of Unum Group, the ceding insurers...

  • Page 141
    UNUM 2013 ANNUAL REPORT / 139 Unsecured Notes In August 2012, we issued $250.0 million of unsecured senior notes in a public offering. In 2011, the remaining $225.1 million of our 7.625% senior notes due March 2011 matured. In 2005, UnumProvident Finance Company plc, a wholly-owned subsidiary of ...

  • Page 142
    ...-term rate of return on plan assets of 7.50 percent remained unchanged from December 31, 2012. The remeasurement resulted in a decrease in our net pension liability of $327.4 million at the remeasurement date, with a corresponding increase in other comprehensive income, less applicable income tax...

  • Page 143
    UNUM 2013 ANNUAL REPORT / 141 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) 2013 2012 Non U.S. Plans 2013 2012 OPEB 2013 2012 Change in Bene...

  • Page 144
    ...of dollars) 2013 2012 Non U.S. Plans 2013 2012 OPEB 2013 2012 Current Liability Noncurrent Liability Noncurrent Asset Underfunded (Overfunded) Status Unrecognized Pension and Postretirement Benefit Costs Net Actuarial Gain (Loss) Prior Service Credit (Cost) Deferred Income Tax Asset Total Included...

  • Page 145
    ... plan, but there are general guidelines that ensure prudent investment action is taken. Such guidelines include the prevention of the plan from using derivatives for speculative purposes and limiting the concentration of risk in any one type of investment. Assets for life insurance benefits payable...

  • Page 146
    144 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements The categorization of fair value measurements by input level for the invested assets in our U.S. pension plans is as follows: December 31, 2013 Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) ...

  • Page 147
    UNUM 2013 ANNUAL REPORT / 145 Level 1 equity and fixed income securities consist of individual holdings and funds that are valued based on unadjusted quoted prices from active markets for identical securities. Level 2 equity securities consist of funds that are valued based on the net asset value ...

  • Page 148
    ... / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements The categorization of fair value measurements by input level for the assets in our U.K. pension plan is as follows. Certain prior year amounts have been reclassified to conform to current year reporting. December 31, 2013 Quoted...

  • Page 149
    ... December 31 are as follows: Pension Benefits U.S. Plans 2013 2012 Non U.S. Plans 2013 2012 OPEB 2013 2012 Benefit Obligations Discount Rate Rate of Compensation Increase Net Periodic Benefit Cost Discount Rate Expected Return on Plan Assets Rate of Compensation Increase 4.50%/ 5.00%* 7.50% 4.00...

  • Page 150
    ... studies, and quarterly investment portfolio reviews. Risk tolerance is established through consideration of plan liabilities, plan funded status, and corporate financial condition. The expected return assumption for the life insurance reserve for our OPEB plan at December 31, 2013 and 2012...

  • Page 151
    ...$1.3 million in 2013, 2012, and 2011, respectively. Our expected benefit payments in future years have been reduced by the amount of subsidy payments we expect to receive. The unrecognized net actuarial loss and prior service credit included in accumulated other comprehensive income and expected to...

  • Page 152
    150 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements Defined Contribution Plans We offer a 401(k) plan to all eligible U.S. employees under which a portion of employee contributions is matched. Concurrent with the adoption of our U.S. pension plan amendments, we adopted an ...

  • Page 153
    UNUM 2013 ANNUAL REPORT / 151 We use the treasury stock method to account for the effect of outstanding stock options, nonvested restricted stock units, and nonvested performance share units on the computation of diluted earnings per share. Under this method, these potential common shares will each...

  • Page 154
    152 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements Note 11. Stock-Based Compensation Description of Stock Plans Under the stock incentive plan of 2012 (the 2012 Plan), up to 20 million shares of common stock are available for awards to our employees, officers, consultants, ...

  • Page 155
    ... in the form of additional units. Compensation cost for cash-settled awards subject to accelerated vesting upon retirement is recognized over the implicit service period. The amount payable per unit awarded is equal to the price per share of Unum Group's common stock at settlement of the award...

  • Page 156
    ...reported in our consolidated statements of income, is as follows: 2013 Year Ended December 31 2012 (in millions of dollars) 2011 Performance Share Units Restricted Stock Units and Cash-Settled Awards Stock Options Other Total Compensation Expense, Before Income Tax Total Compensation Expense, Net...

  • Page 157
    ...sickness, and disability products, life products, and cancer and critical illness products and marketed to employees at the workplace through an independent contractor agency sales force and brokers. The Closed Block segment consists of individual disability, group and individual long-term care, and...

  • Page 158
    ... Death Benefits Reserve Increase for Colonial Life Group Life Waiver of Premium Benefit Reserve Reduction for Unum US Deferred Acquisition Costs Impairment and Reserve Charges for Long-term Care Closed Block Reserve Charge for Individual Disability Closed Block Income Before Income Tax $10,347...

  • Page 159
    ...fits 465.3 642.8 4,517.1 Unum UK Group Long-term Disability Group Life Supplemental 389.9 106.4 60.3 556.6 Colonial Life Accident, Sickness, and Disability Life Cancer and Critical Illness 738.7 221.1 272.4 1,232.2 Closed Block Individual Disability Long-term Care All Other 687.5 630.6 0.7 1,318...

  • Page 160
    158 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements Selected operating statement data by segment is presented as follows: (in millions of dollars) Unum US Unum UK Colonial Life Closed Block Corporate Total Year Ended December 31, 2013 Premium Income Net Investment Income Other...

  • Page 161
    ...(in millions of dollars) 2013 2012 Unum US Unum UK Colonial Life Closed Block Corporate Total $18,384.3 3,654.1 3,482.9 31,564.2 2,318.1 $59,403.6 $19,391.2 3,975.8 3,434.9 33,069.2 2,365.0 $62,236.1 Revenue is primarily derived from sources in the United States and the United Kingdom. There are...

  • Page 162
    160 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements Note 14. Commitments and Contingent Liabilities Commitments We have noncancelable lease obligations on certain office space and equipment. As of December 31, 2013, the aggregate net minimum lease payments were $213.9 million ...

  • Page 163
    ... Court for the District of Maine. This class action alleges 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...

  • Page 164
    162 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements Beginning in 2011, a number of state regulators began requiring insurers to cross-check specified insurance policies with the Social Security Administration's Death Master File to identify potential matches. If a potential ...

  • Page 165
    UNUM 2013 ANNUAL REPORT / 163 Note 15. Statutory Financial Information Statutory Net Income, Capital and Surplus, and Dividends Statutory net income for U.S. insurance companies is reported in conformity with statutory accounting principles prescribed by the National Association of Insurance ...

  • Page 166
    164 / UNUM 2013 ANNUAL REPORT Notes To Consolidated Financial Statements As derived from the most recent annual statutory basis financial statements filed with insurance regulators, the statutory net income and statutory capital and surplus of our United Kingdom insurance subsidiary, Unum Limited...

  • Page 167
    ...the fourth quarter of 2013 are as follows: • A reserve increase of $95.5 million before tax and $62.1 million after tax related to unclaimed death benefits. • A reserve reduction of $85.0 million before tax and $55.2 million after tax related to group life waiver of premium benefits. See Notes...

  • Page 168
    ... 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, 2013 and 2012, and the related consolidated statements of income...

  • Page 169
    UNUM 2013 ANNUAL REPORT / 167 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...

  • Page 170
    ...also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Unum Group and subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, stockholders...

  • Page 171
    UNUM 2013 ANNUAL REPORT / 169 Cautionary Statement Regarding Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 (the Act) provides a "safe harbor" to encourage companies to provide prospective information, as long as those statements are identified as forward-looking ...

  • Page 172
    ...16) 0.14 0.01 1.61 0.03 $ 1.64 (in millions) After-Tax Operating Income (Loss) Average Allocated Equity Operating Return on Equity Year Ended December 31, 2013 Unum US Unum UK Colonial Life Principal Operating Businesses Closed Block Corporate Total $563.1 104.5 185.2 $852.8 71.3 (41.6) $882...

  • Page 173
    ...Columbia, South Carolina Unum Limited Dorking, England The Paul Revere Life Insurance Company Worcester, Massachusetts First Unum Life Insurance Company New York, New York CONTACT INFORMATION Investor Relations Thomas A.H. White Senior Vice President, Investor Relations 1 Fountain Square Chattanooga...

  • Page 174
    Unum Group 1 Fountain Square Chattanooga, TN 37402 www.unum.com © 2014 Unum Group. All rights reserved. Unum is a registered 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 ...