Unum 2013 Annual Report Download - page 22

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
20 / UNUM 2013 ANNUAL REPORT
The discussion and analysis presented in this section should be read in conjunction with the “Selected Financial Data,” the Consolidated
Financial Statements and notes, and the “Cautionary Statement Regarding Forward-Looking Statements” contained herein.
Executive Summary
Throughout 2013, we remained focused on profitable top-line growth in select markets and a disciplined investment strategy, as we
continued to drive effectiveness in our operating performance and to generate consistent, sustainable capital available for deployment.
A discussion of our operating performance and capital management follows.
2013 Operating Performance and Capital Management
For 2013, we reported net income of $858.1 million, or $3.23 per diluted common share, compared to net income of $894.4 million,
or $3.17 per diluted common share, in 2012. Included in these results are net realized investment gains and losses and non-operating
retirement-related gains or losses. Also included are fourth quarter 2013 adjustments for a reserve increase related to unclaimed death
benefits ($95.5 million before tax and $62.1 million after tax, or $0.24 per diluted common share) and a reserve reduction related to group
life waiver of premium benefits ($85.0 million before tax and $55.2 million after tax, or $0.21 per diluted common share). Adjusting for
these items, after-tax operating income was $882.5 million, or $3.32 per diluted common share, in 2013, compared to $887.5 million, or
$3.15 per diluted common share, in 2012.
Total operating revenue, which excludes net realized investment gains and losses, was 1.1 percent lower in 2013 relative to 2012, with
slight declines in both premium income and net investment income. Total operating income, excluding net realized investment gains and
losses, non-operating retirement-related gains or losses, and income taxes, decreased by 0.7 percent compared to 2012. Operating income,
when also excluding the 2013 reserve adjustments related to unclaimed death benefits and group life waiver of premium benefits,
increased slightly relative to 2012, with favorable earnings in all of our segments other than our Corporate segment. Earnings per share
were also favorably impacted by our capital management strategy of returning capital to shareholders through repurchases of our common
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 in operating income, including the 2013 reserve adjustments related to unclaimed death
benefits and group life waiver of premium benefits, of 2.5 percent in 2013 compared to 2012. Operating income excluding these reserve
adjustments increased 1.4 percent, with growth in premium income and overall favorable risk results. Premium income increased
1.4 percent in 2013 compared to 2012, as we believe the weak pace of economic growth, low levels of employment growth, the competitive
environment, and the distraction caused by political instability and the implementation of healthcare reform continued to pressure our
sales and premium income growth throughout 2013. The benefit ratio for our Unum US segment for 2013 was 71.3 percent, or 71.6 percent
excluding the reserve adjustments, compared to 72.7 percent in 2012. Unum US sales decreased 2.0 percent in 2013 compared to 2012.
Although persistency declined slightly during 2013 relative to 2012, our persistency remains strong and is generally consistent with
our expectations.
Our Unum UK segment reported an increase in operating income, as measured in Unum UK’s local currency, of 1.7 percent in 2013
compared to 2012, with overall favorable risk results. Premium income in local currency declined 18.8 percent in 2013 relative to 2012 due
primarily to reinsurance agreements entered into effective January 1, 2013 to cede an additional portion of our group life business. The
reinsurance agreements significantly decreased premium income and benefit payments for group life during 2013 and also reduced
volatility in this line of business. The decline in the benefit ratio for Unum UK to 74.3 percent in 2013 from 77.9 percent, in 2012 was due
primarily to improved risk results in the group life product line. Unum UK sales in 2013 decreased 18.7 percent, in local currency, in 2013
compared to 2012 due primarily to lower group life sales as we continued to execute our plans to improve new business pricing and
reposition our group life business for better margins and greater stability. Persistency declined, as expected, primarily as a result of pursuing
rate increases on renewing business.