Unum 2013 Annual Report Download - page 73

UNUM 2013 ANNUAL REPORT / 71
debt and other payment obligations. As requirements of Dodd-Frank continue to take effect in 2014 and in subsequent years, to the extent
that we enter into derivatives that are subject to centralized exchanges and cleared through a regulated clearinghouse, we may be subject
to stricter collateral requirements which could have an adverse effect on our overall liquidity.
Our policy benefits are primarily in the form of claim payments, and we have minimal exposure to the policy withdrawal risk associated
with deposit products such as individual life policies or annuities. A decrease in demand for our insurance products or an increase in the
incidence of new claims or the duration of existing claims could negatively impact our cash flows from operations. However, our historical
pattern of benefits paid to revenues is consistent, even during cycles of economic downturns, which serves to minimize liquidity risk.
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 and $805 million at December 31, 2013 and 2012, respectively. The decline
during 2013 was due primarily to repurchases of our common stock and a capital contribution of approximately $300 million related to our
2013 re-domestication of UnumProvident International Ltd. (UPIL) a captive reinsurance subsidiary, from Bermuda to the United States. The
December 31, 2013 balance, of which approximately $230 million was held in certain of our foreign subsidiaries in the U.K., was comprised
primarily of commercial paper, fixed maturity securities with a current average maturity of 1.7 years, and various money-market funds. No
significant restrictions exist on our ability to use or access these funds. We currently have no intent, nor do we foresee a need, to repatriate
funds from our foreign subsidiaries in the U.K. We believe we hold domestic resources sufficient to fund our liquidity requirements for the
next 12 months. 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.
As part of our capital deployment strategy, we have in recent years repurchased shares of Unum Group’s common stock, as authorized
by our board of directors. Our current share repurchase program was approved by our board of directors in December 2013 and authorizes
the repurchase of up to $750 million of common stock through June 2015, with the pace of repurchase activity to depend upon various factors
such as the level of available cash, alternative uses for cash, and our stock price. This new authorization replaced the previous authorization
of $750 million that was scheduled to expire in January 2014. The dollar value of shares remaining under the current repurchase program
was approximately $730 million at December 31, 2013.
Cash Available from Subsidiaries
Unum Group and certain of its intermediate holding company subsidiaries depend on payments from subsidiaries to pay dividends to
stockholders, to pay debt obligations, and/or to pay expenses. These payments by our insurance and non-insurance subsidiaries may take
the form of dividends, operating and investment management fees, and/or interest payments on loans from the parent to a subsidiary.
Restrictions under applicable state insurance laws limit the amount of dividends that can be paid to a parent company from its
insurance subsidiaries in any 12-month period without prior approval by regulatory authorities. For life insurance companies domiciled in
the U.S., that limitation generally equals, depending on the state of domicile, either ten percent of an insurer’s statutory surplus with
respect to policyholders as of the preceding year end or the statutory net gain from operations, excluding realized investment gains and
losses, of the preceding year. The payment of dividends to a parent company from a life insurance subsidiary is generally further limited
to the amount of unassigned funds.
Certain of our domestic insurance subsidiaries cede blocks of business to Northwind Reinsurance Company (Northwind Re), Tailwind
Reinsurance Company (Tailwind Re), and UPIL, all of which are affiliated captive reinsurance subsidiaries (captive reinsurers) 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
requirements and on the performance of the business reinsured by Northwind Re, Tailwind Re, and UPIL. See “Debt” and Note 8 of the
“Notes to Consolidated Financial Statements” contained herein for further discussion of dividend restrictions for Northwind Re.