Unum 2013 Annual Report Download - page 23

UNUM 2013 ANNUAL REPORT / 21
Our Colonial Life segment reported a decrease in operating income, including the 2013 reserve increase related to unclaimed death
benefits, of 3.5 percent in 2013 compared to 2012. Operating income excluding this reserve adjustment increased 3.9 percent in 2013, with
higher operating revenue and stable risk results. Premium income grew 3.2 percent in 2013 compared to 2012. The 2013 benefit ratio for
Colonial Life was 54.1 percent, and excluding the reserve increase was 52.5 percent, consistent with the level of 2012. Colonial Life sales
increased 1.6 percent in 2013 compared to 2012, driven by higher large case commercial market sales. Persistency in 2013 declined slightly
but remains strong for all lines of business.
Our Closed Block segment reported an increase in operating income of 14.6 percent in 2013 relative to 2012. Net investment income
increased 3.4 percent in 2013 compared to 2012 due to higher invested asset levels. Risk results in 2013 were slightly favorable for both
individual disability and long-term care relative to the prior year.
Our investment portfolio continues to perform well, and our invested asset quality remains strong. The net unrealized gain on our fixed
maturity securities was $4.1 billion at December 31, 2013 compared to $7.2 billion at December 31, 2012, with the decline due primarily to
an increase in U.S. Treasury rates during 2013.
We believe our capital and financial positions are strong. At December 31, 2013, 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 396 percent at December 31, 2012. During 2013, we repurchased 11.2 million shares of Unum Group common
stock at a cost of $318.6 million under our share repurchase program. Cash equivalents and marketable securities held at Unum Group and
our other intermediate holding companies are a significant source of liquidity for us and were approximately $514 million at December 31,
2013, relative to $805 million at December 31, 2012. The decline was due primarily to repurchases of our common stock and a capital
contribution related to our 2013 re-domestication of a captive reinsurance subsidiary.
2013 Unclaimed Death Benefits Reserve Increase
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 match was identified, insurers were requested to
determine if benefits were due, locate beneficiaries, and make payments where appropriate. We initiated this process where requested,
and in 2012 we began implementing this process in all states on a forward-looking basis. We believe adopting this process, which reflects
an evolving regulatory and industry practice, is in the best interest of our customers. Therefore, in addition to implementing this on a
forward-looking basis, in 2013 we began an initiative to search for potential claims from previous years.
During the fourth quarter of 2013, we completed our assessment of benefits which we estimate will be paid under this initiative, and
as such, established additional reserves for payment of these benefits. Claim reserves were increased $49.1 million for Unum US group life,
$26.3 million for Unum US voluntary life, and $20.1 million for Colonial Life voluntary life, for a total reserve increase of $95.5 million. These
reserve adjustments decreased net income $62.1 million.
Although the legal and regulatory environment continues to evolve, we believe our decision to adopt this claims practice and establish
additional reserves is in the best interests of our customers.
2013 Group Life Waiver of Premium Benefit Reserve Reduction
Within our Unum US segment, we offer group life insurance coverage which consists primarily of renewable term life insurance and
includes a provision for waiver of premium, if disabled. The group life waiver of premium benefit (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 anticipated death
benefits reflecting the probability of death while remaining disabled. Claim reserves are calculated using assumptions based on past
experience adjusted for current trends and any other factors that would modify past experience and are subject to revision as current claim
experience emerges and alters our view of future expectations.