Unum 2014 Annual Report Download - page 71

UNUM • 2014 ANNUAL REPORT 69
Liquidity and Capital Resources
Overview
Our liquidity requirements are met primarily by cash flows provided from operations, principally in 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 additional sources of liquidity. Cash is applied to the payment of policy benefits, costs of acquiring new
business (principally commissions), operating expenses, and taxes, as well as purchases of new investments.
We have established an investment strategy that we believe will provide for adequate cash flows from operations. We attempt
to match our asset cash flows and durations with expected liability cash flows and durations to meet the funding requirements of our
business. However, deterioration in the credit market may delay our ability to sell our positions in certain of our fixed maturity securities in
a timely manner and adversely impact the price we receive for such securities, which may negatively impact our cash flows. Furthermore,
if we experience defaults on securities held in the investment portfolios of our insurance subsidiaries, this will negatively impact statutory
capital, which could reduce our insurance subsidiaries’ capacity to pay dividends to our holding companies. A reduction in dividends to our
holding companies could force us to seek external financing to avoid impairing our ability to pay dividends to our stockholders or meet our
debt and other payment obligations. As requirements of Dodd-Frank continue to take effect in 2015 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 intermediate holding companies are a significant source of
liquidity for us and were approximately $575 million and $514 million at December 31, 2014 and 2013, respectively. The change was driven
primarily by increases from dividends from subsidiaries and our debt issuance in March, less decreases resulting from debt repayments and
repurchases of our common stock. The December 31, 2014 balance, of which approximately $176 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 1.8 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. The dollar value of shares remaining under the current
repurchase program was approximately $430 million at December 31, 2014. During 2014, we repurchased 8.7 million shares at a cost
of approximately $301 million.