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Unum 2015 Annual Report
Protecting More
Tomorrows
2015 ANNUAL REPORT

Table of contents

  • Page 1
    Tomorrows 2015 ANNUAL REPORT Unum 2015 Annual Report Protecting More

  • Page 2
    ... United States. UNUM UK Unum UK is the leading provider of income protection and critical illness coverage in the United Kingdom, and also offers life and dental benefits. CLOSED BLOCK Closed Block consists of individual disability, group and individual long-term care, and other benefit products...

  • Page 3
    ... solutions, the responsibility for building a personal financial safety net lands squarely on individuals. We believe we are uniquely positioned to address this pressing societal need. With disability, life and a variety of voluntary insurance benefits offered through the workplace, today we protect...

  • Page 4
    ... operating environment that remains challenging for insurers, we saw growing demand across our businesses as our products and services are more relevant than ever to people of all generations. Overall, sales and premium each rose 5 percent as our core businesses - Unum US, Unum UK and Colonial Life...

  • Page 5
    ... as a company. In addition to protecting the financial stability of individuals and families, our benefits help rebuild careers and lives. We recently received a letter from a Unum customer who was forced by injury to leave his 17-year career in law enforcement. His disability benefit payments were...

  • Page 6
    ... to provide a rewarding work environment, recognizing that our employees can only be at their best if they have the opportunity to grow and learn. As a result, we've been recognized as a top employer both nationally as well as in our home states. These efforts not only benefit our employees, but...

  • Page 7
    ...11 '12 '13 '14 '15 '11 '12 '13 '14 '15 Last year alone, we paid more than Annual Dividend Per Share $0.700 $0.620 $0.550 $0.470 $0.395 $0.300 $0.315 $0.350 $6.8B in benefits and helped some 327,000 people return to work '08 '09 '10 '11 '12 '13 '14 '15 Unum 2015 Annual Report 5

  • Page 8
    Unum US 6

  • Page 9
    ...- now and in the future." Mike Simonds President and CEO, Unum US Unum US grew faster in 2015 than at any other time in over a decade. More importantly, the business grew profitably, with a focus on consumers, clients and collaborative partnerships. Our technology investments are bringing us closer...

  • Page 10
    Unum UK 8

  • Page 11
    ... with our strategy. Our acquisition of a market-leading dental business reflects this ambition. We remain committed to enhancing our proposition in the future with the ultimate aim of delivering profitable growth and improved return on investment for our key stakeholders. Unum 2015 Annual Report 9

  • Page 12
    Colonial Life 10

  • Page 13
    ... times public sector the markets market rate COMMITTED TO CONSUMERS • Protecting 3.5 27.9 million million people people • $589.4 $5.8 billion million in benefits in benefits paid paid in 2015 in 2015 • Easy mobile app for claim and leave information • Electronic evidence of insurability for...

  • Page 14
    Closed Block 12

  • Page 15
    ... in managing investment returns "We keep the needs and expectations of our customers at the center of all we do, and we are confident that we are taking the right steps to manage our business." Steve Zabel President, Closed Block More than a million people depend on the disability, long term care...

  • Page 16
    ... Chief Executive Officer Timothy G. Arnold President and Chief Executive Officer, Colonial Life Breege A. Farrell Executive Vice President and Chief Investment Officer Lisa G. Iglesias Executive Vice President and General Counsel Christopher J. Jerome Executive Vice President, Global Services...

  • Page 17
    ...the Company Cynthia L. Egan Retired President, Retirement Plan Services, T. Rowe Price Group, Inc. A.S. MacMillan, Jr. Chief Executive Officer, Triaxia Partners, Inc. William J. Ryan Lead Independent Director of the Company; Retired Chairman, TD Banknorth Inc. Pamela H. Godwin President, Change...

  • Page 18
    ...Group 2015 2014 As Adjusted(1) 2013 2012 2011 Income Per Share (2) After-tax Operating Income(3) Net Realized Investment Gain (Loss), Net of Tax Non-operating Retirement-related Loss, Net of Tax Costs Related to Early Retirement of Debt, Net of Tax Reserve Charges for Closed Block, Net of Tax...

  • Page 19
    Unum Group - 2015 Financial Review 18 Selected Financial Data 20 Management's Discussion and Analysis of Financial Condition and Results of Operations 78 Quantitative and Qualitative Disclosures About Market Risk 84 Consolidated Balance Sheets 86 Consolidated Statements of Income 87 Consolidated ...

  • Page 20
    ... of dollars, except share data) 2015 2014 2013 2012 As Adjusted (1) 2011 Income Statement Data Revenue Premium Income Net Investment Income Net Realized Investment Gain (Loss) Other Income Total Benefits and Expenses Benefits and Change in Reserves for Future Benefits (2) Commissions Interest and...

  • Page 21
    ... a pension plan amendment and $196.0 million in 2011 related to the impairment of long-term care closed block deferred acquisition costs. See Note 9 of the "Notes to Consolidated Financial Statements" contained herein for further discussion of the 2014 settlement loss. Unum 2015 Annual Report 19

  • Page 22
    ...currency exchange rate in 2015. Our Unum US segment reported a slight increase in operating income of 0.6 percent in 2015 compared to 2014, with growth in premium income and overall favorable benefits experience partially offset by lower net investment income. Premium income increased 6.4 percent in...

  • Page 23
    ... may receive long-term care benefits. We changed our morbidity assumptions to reflect emerging industry experience as well as our own company experience, and we updated our projection of future premium rate increase approvals. Using our revised best estimate assumptions, as of December 31, 2014 we...

  • Page 24
    ... our U.S. qualified defined benefit pension plan to allow a limited-time offer of benefit payouts to eligible former employees with a vested right to a pension benefit. The offer provided eligible former employees, regardless of age, with an option to elect to receive a lump-sum settlement of his or...

  • Page 25
    ...for our Unum US group life waiver reserves and, as a result, reduced the applicable claim reserves by $85.0 million and increased 2013 net income $55.2 million. Consolidated Company Outlook for 2016 We believe our disciplined approach to providing financial protection products at the workplace puts...

  • Page 26
    ...) 2015 2014 2013 Operating Revenue Net Realized Investment Gain (Loss) Total Revenue Before-tax Operating Income Net Realized Investment Gain (Loss) Non-operating Retirement-related Loss Costs Related to Early Retirement of Debt Long-term Care Reserve Increase Unclaimed Death Benefits Reserve...

  • Page 27
    ...our individual disability and voluntary benefits 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...

  • Page 28
    ... to service a block of group pension products, which we have not ceded, and the policy reserves for these products are based on expected mortality rates and retirement rates. Expected future payments are discounted at interest rates reflecting the anticipated investment returns for the assets...

  • Page 29
    ... of the actual reported claimants, such as age, length of time disabled, and medical diagnosis, as well as assumptions regarding claim duration, discount rate, and policy benefit offsets. We believe the tabular reserve method is the most accurate to calculate long-term liabilities and allows...

  • Page 30
    ... 31, 2014 Gross Claim Reserves Incurred IBNR % Total Total Reinsurance Ceded Total Net Group Disability Group Life and Accidental Death & Dismemberment Individual Disability Voluntary Benefits Unum US Segment Unum UK Segment Colonial Life Segment Individual Disability Long-term Care Other Closed...

  • Page 31
    ... changes to social security and other government-based welfare benefits programs which provide policy benefit offsets, among other factors, will influence claim incidence rates, claim resolution rates, and claim costs. In addition, for policies offering coverage for disability or long-term care...

  • Page 32
    ... levels of 2014. We believe claim incidence trends for Unum US group long-term disability may continue to somewhat follow general economic conditions and demographics of the general U.S. workforce. During 2015, claim incidence rates for our Closed Block long-term care line of business were generally...

  • Page 33
    ...interest rates, and future premium rate increases must incorporate extended views of expectations for many years into the future. Reserves are highly sensitive to these estimates. For example, a 25 basis point change in the assumed discount rate over the lifetime of our long-term care business would...

  • Page 34
    ... dollars) Unum US Group Disability Group Life and Accidental Death & Dismemberment Supplemental and Voluntary: Individual Disability Voluntary Benefits Unum UK Group Long-term Disability Group Life Supplemental Colonial Life Accident, Sickness, and Disability Life Cancer and Critical Illness Totals...

  • Page 35
    ... at December 31, 2014. The changes were based on observable market spreads. Newly issued private placement securities have historically offered yield premiums higher than a similar interest rate spread on comparable newly issued public securities. • Additional basis points were added as deemed...

  • Page 36
    ... • Current and future business prospects and trends of earnings • The valuation of the security's underlying collateral • Relevant industry conditions and trends relative to their historical cycles • Market conditions • Rating agency and governmental actions • Bid and offering prices and...

  • Page 37
    ... our U.S. qualified defined benefit pension plan to allow a limited-time offer of benefit payouts to eligible former employees with a vested right to a pension benefit. The offer provided eligible former employees, regardless of age, with an option to elect to receive a lump-sum settlement of his or...

  • Page 38
    ... and benefit payments. A lower long-term rate of return on plan assets increases our net periodic benefit cost. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews. Risk...

  • Page 39
    ...the Year Ended December 31, 2015 Net Periodic Benefit Cost, Before Tax Benefit Obligation Stockholders' Equity, After Tax Assumption ($ in millions) Change Discount Rate Discount Rate Expected Long-term Rate of Return on Plan Assets Expected Long-term Rate of Return on Plan Assets +50 bp -50 bp...

  • Page 40
    ... at December 31, 2015 and December 31, 2014, respectively. This year over year change was due primarily to the decrease in period benefit obligations due to the increase in discount rate, mostly offset by lower than expected asset returns. The fair value of plan assets in our U.K. pension plan was...

  • Page 41
    ... Operating Results Year Ended December 31 (in millions of dollars) 2015 % Change 2014 % Change 2013 Revenue Premium Income Net Investment Income Net Realized Investment Gain (Loss) Other Income Total Revenue Benefits and Expenses Benefits and Change in Reserves for Future Benefits Commissions...

  • Page 42
    ... of our principal operating business segments in 2015 and in 2014 due to increased sales, premium rate increases, and favorable persistency in most of our product lines. Premium income continues to decline year over year, as expected, in our Closed Block segment. Net investment income declined in...

  • Page 43
    ... operations by $6.5 million in 2015 and $6.3 million in 2013. Our 2015 income tax also includes a reduction in federal income taxes of $6.8 million related to our resolution with the Internal Revenue Service of certain outstanding issues. In 2014, our U.S. earnings included a long-term care reserve...

  • Page 44
    ... 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 and voluntary benefits products. 42 Unum 2015 Annual Report

  • Page 45
    ... Income Before Income Tax and Net Realized Investment Gains and Losses Unclaimed Death Benefits (UDB) Reserve Increase Group Life Waiver of Premium Benefit (Waiver) Reserve Reduction Operating Income Operating Ratios (% of Premium Income): Benefit Ratio Benefit Ratio Excluding the UDB and Waiver...

  • Page 46
    ..., except ratios) 2015 % Change 2014 % Change 2013 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 Deferral of...

  • Page 47
    ..., 2014 Premium income increased in 2015 compared to 2014, driven by sales growth and premium rate increases, as well as favorable persistency in the group long-term disability product line. Net investment income declined in 2015 relative to 2014 due to a decrease in the level of invested assets and...

  • Page 48
    ... of dollars, except ratios) 2015 % Change 2014 % Change 2013 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
    ... persistency. Net investment income was generally consistent in 2015 relative to the prior year, with an increase in the level of invested assets offset by a decline in yield. Benefits experience was unfavorable in 2015 compared to 2014 due to a higher average paid claim size in both group life and...

  • Page 50
    ... and key performance indicators for Unum US supplemental and voluntary product lines. Year Ended December 31 (in millions of dollars, except ratios) 2015 % Change 2014 % Change 2013 Operating Revenue Premium Income Individual Disability Voluntary Benefits Total Premium Income Net Investment Income...

  • Page 51
    ...Year Ended December 31, 2014 Premium income was higher in 2015 compared to 2014 due to sales growth, partially offset by a decline in persistency in the voluntary benefits product line. Net investment income was higher in 2015 relative to 2014 due to growth in the level of invested assets and higher...

  • Page 52
    ...) 2015 % Change 2014 % Change 2013 Sales by Product Group Disability and Group Life and AD&D Group Long-term Disability Group Short-term Disability Group Life and AD&D Subtotal Supplemental and Voluntary Individual Disability Voluntary Benefits Subtotal Total Sales Sales by Market Sector Group...

  • Page 53
    ... the group disability market, pricing and renewal actions can be taken to react to higher claim rates or lower discount rates, but these actions take time to implement, and there is a risk that the market will not sustain increased prices. In addition, changes in economic and external conditions may...

  • Page 54
    ... the Unum UK segment. Year Ended December 31 (in millions of dollars, except ratios) 2015 % Change 2014 % Change 2013 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...

  • Page 55
    ...pounds, except ratios) 2015 % Change 2014 % Change 2013 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 of...

  • Page 56
    ... net investment income attributable to these index-linked bonds was largely offset by a more favorable year over year change in the reserves for future claims payments related to the inflation index-linked group long-term disability and group life policies. Benefits experience was favorable in 2015...

  • Page 57
    ...2015 % Change 2014 % Change 2013 Sales by Product Group Long-term Disability Group Life Supplemental Total Sales Sales by Market Sector Group Long-term Disability and Group Life Core Market (< 500 lives) Large Case Market Subtotal Supplemental Total Sales Sales by Product Group Long-term Disability...

  • Page 58
    ... impact our sales and operating results. In addition, we continue to focus on new market opportunities by raising awareness of the need for income protection. Expanding group long-term disability market penetration remains a significant opportunity and priority. 56 Unum 2015 Annual Report

  • Page 59
    ... ratios) 2015 % Change 2014 % Change 2013 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 Deferral...

  • Page 60
    ... 31 (in millions of dollars) 2015 % Change 2014 % Change 2013 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 Total Sales $276.1 85.6 76.8 $438...

  • Page 61
    ... policies. We discontinued offering individual long-term care in 2009 and group long-term care in 2012. Other insurance products include group pension, individual life and corporate-owned life insurance, reinsurance pools and management operations, and other miscellaneous product lines. Unum 2015...

  • Page 62
    ... dollars, except ratios) 2015 % Change 2014 % Change 2013 Operating Revenue Premium Income Individual Disability Long-term Care All Other Total Premium Income Net Investment Income Other Income Total Benefits and Expenses Benefits and Change in Reserves for Future Benefits Commissions Interest and...

  • Page 63
    ...to pricing long-term care coverage. In states for which a rate increase is submitted and approved, we routinely provide customers options for coverage changes or other approaches that might fit their current financial and insurance needs. Net investment income was higher in 2015 relative to 2014 due...

  • Page 64
    ... Operations Profitability of our long-tailed products is affected by claims experience related to mortality and morbidity, investment returns, premium rate increases, and persistency. We believe that the interest adjusted loss ratios for the individual disability and long-term care lines of business...

  • Page 65
    ... in commercial mortgage loans. The remaining assets can be held in publicly traded investment-grade corporate securities, mortgage/asset backed securities, bank loans, government and government agency securities, and municipal securities. • We intend to manage the risk of losses due to changes in...

  • Page 66
    ... appointed by the boards of directors of our insurance subsidiaries. These actions are also reviewed by the risk and finance committee of Unum Group's board of directors on a quarterly basis. • We review these investment policies and guidelines annually, or more frequently if deemed necessary, and...

  • Page 67
    ...increase in both U.S. Treasury rates and credit spreads which occurred during the period. Unrealized Loss on Investment-Grade Fixed Maturity Securities Length of Time in Unrealized Loss Position 2015 (in millions of dollars) December 31 September 30 June 30 March 31 2014... Unum 2015 Annual Report 65

  • Page 68
    ...'s Discussion and Analysis of Financial Condition and Results of Operations Unrealized Loss on Below-Investment-Grade Fixed Maturity Securities Length of Time in Unrealized Loss Position 2015 (in millions of dollars) December 31 September 30 June 30 March 31 2014 December 31 Fair Value < 100...

  • Page 69
    ... or greater from the sale of fixed maturity securities during 2015, 2014, or 2013. At December 31, 2015, we had minimal exposure to investments for which the payment of interest and principal is guaranteed under a financial guaranty insurance policy, and the securities in aggregate have a weighted...

  • Page 70
    ... on these investments to increase. The following table shows additional information related to our holdings in the energy sector. Fixed Maturity Securities - Energy Sector At December 31, 2015 (in millions of dollars) Net Unrealized Gain (Loss) Fair Value of Fixed Maturity Securities with Gross...

  • Page 71
    ...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...

  • Page 72
    ... and Results of Operations 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...

  • Page 73
    ... benefit pension plan during 2015, nor do we expect to make any contributions to either plan during 2016. We have met all minimum pension funding requirements set forth by the Employee Retirement Income Security Act. We have estimated our future funding requirements under the Pension Protection...

  • Page 74
    ...tax gain of $4.0 million. Northwind Holdings made principal payments on its floating rate, senior secured notes of $74.4 million, $41.6 million, and $60.0 million in 2015, 2014, and 2013, respectively. Issuance of Debt In 2015, we issued $275.0 million of unsecured senior notes in a public offering...

  • Page 75
    ... payments and therefore exceed what is reported in the consolidated balance sheets. Miscellaneous liabilities include commissions due and accrued, deferred compensation liabilities, state premium taxes payable, amounts due to reinsurance companies, legally binding commitments to fund investments...

  • Page 76
    ... herein for additional information. Transfers of Financial Assets Our investment policy permits us to lend fixed maturity securities to unaffiliated financial institutions in short-term securities lending agreements, which increases our investment income with minimal risk. We account for all of...

  • Page 77
    ... in the change in insurance reserves and liabilities to reconcile net income to net cash provided by operating activities as reported in our consolidated statements of cash flows for 2014 was due primarily to the 2014 reserve increase for our long-term care line of business. Investing Cash Flows...

  • Page 78
    .... During 2015, 2014, and 2013 we paid dividends of $174.2 million, $159.4 million, and $146.5 million, respectively, to holders of Unum Group's common stock. See "Debt" and Notes 8 and 10 of the "Notes to Consolidated Financial Statements" contained herein for further information. Ratings AM Best...

  • Page 79
    ... credit rating for Unum Group during 2015. AM Best affirmed its ratings during 2014. There were no changes in any of the rating agencies' outlook statements or ratings during 2015 or in 2016 prior to the date of this filing. Agency ratings are not directed toward the holders of our securities and...

  • Page 80
    ...mortgage loans, policy loans, 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...

  • Page 81
    ... that would be necessary if the unrealized investment gains and losses related to the fixed maturity securities and derivatives had been realized. Changes in this adjustment are also reported as a component of other comprehensive income or loss, net of deferred taxes. Unum 2015 Annual Report 79

  • Page 82
    ... exchange rates for 2015 and 2014, before-tax operating income, as reported in U.S. dollars, would have decreased approximately $15 million in each of those two years. Dividends paid by Unum Limited are generally held at our U.K. finance subsidiary or our U.K. holding company. If these funds are...

  • Page 83
    ...operational risks within their respective areas, consistent with enterprise risk management guidance. Corporate risk committees and other management committees oversee the operational, global technology services, investment, and capital management risks on a corporate level. Unum 2015 Annual Report...

  • Page 84
    ... to many multi-line peer companies, we do not offer retirement savings, traditional medical benefits, or property and casualty insurance. Our corporate strategy is focused on providing group, individual, and voluntary benefits, either as stand-alone products or combined with other coverages, that...

  • Page 85
    ... accept and manage strategic, credit, and insurance risks in accordance with our corporate strategy, investment policy, and annual business plans. The following fundamental principles are embedded in our risk management efforts across our Company. • We believe in the benefits of specialization and...

  • Page 86
    ...of dollars) 2015 2014 As Adjusted Assets Investments Fixed Maturity Securities - at fair value (amortized cost: $39,658.7; $38,803.4) Mortgage Loans Policy Loans Other Long-term Investments Short-term Investments Total Investments Other Assets Cash and Bank Deposits Accounts and Premiums Receivable...

  • Page 87
    ... 2014 As Adjusted 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-term Debt Long-term Debt Payables for Collateral on Investments...

  • Page 88
    ...share data) 2015 2014 As Adjusted 2013 Revenue Premium Income Net Investment Income Realized Investment Gain (Loss) Other-Than-Temporary Impairment Loss on Fixed Maturity Securities Other Net Realized Investment Gain (Loss) Net Realized Investment Gain (Loss) Other Income Total Revenue Benefits and...

  • Page 89
    ... of dollars) 2015 2014 As Adjusted 2013 Net Income Other Comprehensive Income (Loss) Change in Net Unrealized Gain on Securities Before Adjustment (net of tax expense (benefit) of $(892.5); $725.8; $(1,102.8)) Change in Adjustment to Deferred Acquisition Costs and Reserves for Future Policy and...

  • Page 90
    ...2015 2014 As Adjusted 2013 Common Stock Balance at Beginning of Year Common Stock Activity Retirement of Treasury Stock Balance at End of Year Additional Paid-in Capital Balance at Beginning of Year Common Stock Activity Retirement of Treasury Stock...$ 8,521.9 $ 8,639.9 88 Unum 2015 Annual Report

  • Page 91
    ...) 2015 2014 As Adjusted 2013 Cash Flows from Operating Activities Net Income Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Change in Receivables Change in Deferred Acquisition Costs Change in Insurance Reserves and Liabilities Change in Income Taxes Change in...

  • Page 92
    ...-paid group benefits, and other related services, either as stand-alone products or combined with other coverages. We market our products primarily through the workplace. We have three principal operating business segments: Unum US, Unum UK, and Colonial Life. Our other reporting segments are Closed...

  • Page 93
    ...: 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 cash accounts and cash equivalents earning interest. See Note 2. Unum 2015 Annual Report 91

  • Page 94
    ...interest rate swaps are used in hedge accounting relationships, periodic settlements are recorded in the same income statement line as the related settlements of the hedged items. To the extent it is effective, changes in the fair value of a derivative designated as a cash flow hedge are reported in...

  • Page 95
    ... 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 line within...

  • Page 96
    ... be paid on insured claims in excess of the policyholders' policy fund balances. Reserves for Policy and Contract Benefits: Policy reserves represent future policy and contract benefits for claims not yet incurred. Policy reserves for non-interest sensitive life and accident and health products are...

  • Page 97
    ...not included in revenue. Fees from our administrative-services only and family medical leave products are reported as other income when services are rendered. Reinsurance: We routinely enter into reinsurance agreements with other insurance companies to spread risk and thereby limit losses from large...

  • Page 98
    ... loss is generally reported in accumulated other comprehensive income, net of deferred tax. We do not provide for deferred taxes to the extent unremitted foreign earnings are deemed permanently invested. Accounting for Participating Individual Life Insurance: Participating policies issued by one of...

  • Page 99
    ... policy election to account for investments in qualified amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net...

  • Page 100
    ..., 2014 Historical Accounting (in millions of dollars, except share data) Year Ended December 31, 2013 Historical Accounting Method As Adjusted Effect of Change As Adjusted Effect of Change Method Consolidated Statements of Income Net Investment Income Income Tax - Current Income Tax - Deferred...

  • Page 101
    ... net income unless the investment qualifies for certain practicability exceptions. In addition, the update clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale fixed maturity securities. Changes...

  • Page 102
    ... Services - Insurance" This update changes the disclosure requirements for certain insurance contracts. These changes include a requirement to disclose the rollforward of the liability for unpaid claims and claim adjustment expenses in both interim and annual reporting periods for long-duration...

  • Page 103
    ... Amount 2014 Fair Value Assets Fixed Maturity Securities Mortgage Loans Policy Loans Other Long-term Investments Derivatives Equity Securities Miscellaneous Long-term Investments Liabilities Policyholders' Funds Deferred Annuity Products Supplementary Contracts without Life Contingencies Short-term...

  • Page 104
    ... value hierarchy. 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 primarily derived from net asset values provided by the general...

  • Page 105
    ... uncertainty, the income approach can, in suitable circumstances, provide a more appropriate fair value. During 2015, we have applied valuation techniques on a consistent basis to similar assets and liabilities and consistent with those techniques used at year end 2014. Unum 2015 Annual Report 103

  • Page 106
    ... from external pricing services Principally the market approach Analysis of similar bonds, adjusted for comparability Relevant reports issued by analysts and rating agencies Audited financial statements Foreign Governments Valuation Techniques Key Inputs Principally the market approach Prices...

  • Page 107
    .../optionality Public covenants Comparative bond analysis Relevant reports issued by analysts and rating agencies Audited financial statements Mortgage/Asset-Backed Securities Valuation Techniques Key Inputs Principally the market and income approaches Prices obtained from external pricing services...

  • Page 108
    ... Relevant reports issued by analysts and rating agencies Audited financial statements Equity Securities Valuation Techniques Key Inputs Principally the market approach Prices obtained from external pricing services Non-binding broker quotes Principally the market and income approaches Financial...

  • Page 109
    ... future profitability, to estimate the fair value. Additionally, we may obtain prices from independent third-party brokers to aid in establishing valuations for certain of these securities. Key assumptions used by us to determine fair value for these securities include risk-free interest rates, risk...

  • Page 110
    ... 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 Investments...

  • Page 111
    ... 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 Investments...

  • Page 112
    ...2015 Transfers into (in millions of dollars) Level 1 from Level 2 Level 2 from Level 1 Level 1 from Level 2 Level 2 from Level 1 2014 Fixed Maturity Securities United States Government and Government Agencies and Authorities Public Utilities All Other Corporate Bonds Total Fixed Maturity Securities...

  • Page 113
    ... 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 Maturity...

  • Page 114
    ...31, 2015 (in millions of dollars) Fair Value Unobservable Input Range/Weighted Average Fixed Maturity Securities States, Municipalities, and Political Subdivisions - Private States, Municipalities, and Political Subdivisions - Public All Other Corporate Bonds - Private $ 73.3 12.0 151.0 Change in...

  • Page 115
    ...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 $ 1,265.8 1,828...

  • Page 116
    ...States Government and Government Agencies and Authorities States, Municipalities, and Political Subdivisions Public Utilities Mortgage/Asset-Backed Securities All Other Corporate Bonds Redeemable Preferred Stocks Total Fixed Maturity Securities....1 4,170.4 167.6 $4,338.0 114 Unum 2015 Annual Report

  • Page 117
    ... • Current and future business prospects and trends of earnings • The valuation of the security's underlying collateral • Relevant industry conditions and trends relative to their historical cycles • Market conditions • Rating agency and governmental actions • Bid and offering prices and...

  • Page 118
    ... 2015, the amount of which may or may not be funded. We are the sole beneficiary of a special purpose entity which is consolidated in our financial statements. This entity is a securitized asset trust containing a highly rated bond for principal protection and a private equity partnership investment...

  • Page 119
    ... ratings may include the following: • Loan-to-value ratio • Debt service coverage ratio based on current operating income • Property location, including regional economics, trends and demographics • Age, condition, and construction quality of property • Current and historical occupancy...

  • Page 120
    ... 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) 2015 2014 Internal Rating Aa...

  • Page 121
    ... of our securities lending agreements disaggregated by class of collateral pledged are as follows: December 31, 2015 (in millions of dollars) Overnight and Continuous United States Government and Government Agencies and Authorities Public Utilities All Other Corporate Bonds Total Borrowings...

  • Page 122
    ... provide for conditional rights of set-off upon the occurrence of an early termination event. An early termination event is considered a default, and it allows the non-defaulting party to offset its contracts in a loss position against any gain positions or payments due to the defaulting party...

  • Page 123
    ...in millions of dollars) 2015 2014 2013 Fixed Maturity Securities Derivatives Mortgage Loans Policy Loans Other Long-term Investments Short-term Investments Gross Investment Income Less Investment Expenses Less Investment Income on Participation Fund Account Assets Net Investment Income $2,327.1 44...

  • Page 124
    ... currency of the operating segment. For hedges of debt issued, we paid, at specified intervals, fixed rate foreign currency-denominated principal and interest payments to the counterparty in exchange for fixed rate U.S. dollardenominated principal and interest payments. 122 Unum 2015 Annual Report

  • Page 125
    ... terminate our contracts and request immediate payment. The aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a liability position was $50.2 million and $92.9 million at December 31, 2015 and 2014, respectively. Unum 2015 Annual Report 123

  • Page 126
    ...denominated securities previously hedged, we entered into $124.7 million notional amount of foreign currency interest rate swaps during 2014 whereby we receive fixed rate functional currency principal and interest in exchange for fixed rate payments in foreign currency. 124 Unum 2015 Annual Report

  • Page 127
    ... used to fund our floating rate long-term debt. The change in fair value of the hedged fixed maturity securities attributable to the hedged benchmark interest rate resulted in a loss of $5.3 million, $5.3 million, and $11.5 million for the years ended December 31, 2015, 2014, and 2013, respectively...

  • Page 128
    ... financial instruments, as reported in our consolidated balance sheets. December 31, 2015 Asset Derivatives (in millions of dollars) Balance Sheet Location Fair Value Liability Derivatives Balance Sheet Location Fair Value Designated as Hedging Instruments Interest Rate Swaps Foreign Exchange...

  • Page 129
    ....3 The following 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) 2015 2014 2013 Net Realized Investment Gain (Loss) Credit Default Swaps...

  • Page 130
    ... 31 (in millions of dollars) 2015 2014 2013 2012 Change for the Year Ended December 31 2015 2014 2013 Fixed Maturity Securities Other Investments Deferred Acquisition Costs Reserves for Future Policy and Contract Benefits Reinsurance Recoverable Income Tax Total $ 3,695.7 (33.7) (29.4) (3,578...

  • Page 131
    ...dollars) 2015 2014 2013 Net Unrealized Gain on Securities Net Realized Investment Gain (Loss) Gain (Loss) on Sales of Securities and Other Invested Assets Other-Than-Temporary Impairment Loss Income Tax Benefit Total Net Gain on Cash Flow Hedges Net Investment Income Gain on Interest Rate Swaps and...

  • Page 132
    .... Our claim resolution rate assumption used in determining reserves is our expectation of the resolution rate we will experience over the life of the block of business and will vary from actual experience in any one period, both favorably and unfavorably. 2014 Long-term Care Reserve Increase Policy...

  • Page 133
    ... may receive long-term care benefits. We changed our morbidity assumptions to reflect emerging industry experience as well as our own Company experience, and we updated our projection of future premium rate increase approvals. Using our revised best estimate assumptions, as of December 31, 2014, we...

  • Page 134
    ...for-sale securities had been realized. Changes in this adjustment are reported as a component of other comprehensive income or loss. Note 7. Income Tax Total income tax expense (benefit) is allocated as follows: Year Ended December 31 (in millions of dollars) 2015 2014 2013 Net Income Stockholders...

  • Page 135
    ... reporting. December 31 (in millions of dollars) 2015 2014 Deferred Tax Liability Deferred Acquisition Costs Fixed Assets Invested Assets Other Gross Deferred Tax Liability Deferred Tax Asset Reserves Employee Benefits Other Gross Deferred Tax Asset Less: Valuation Allowance Net Deferred Tax Asset...

  • Page 136
    ... by the Internal Revenue Service (IRS) with regard to our U.S. federal income tax returns. During 2015, we settled our IRS audit for 2009 and 2010 and resolved a claim for refund we filed related to tax credits for years 2003 through 2012. As a result, we recognized a tax benefit of $6.8 million in...

  • Page 137
    ... income taxes paid net of refunds during 2015, 2014, and 2013 were $189.1 million, $155.7 million, and $398.1 million, respectively. Note 8. Debt Debt consists of the following: December 31 2015 (in millions of dollars) Interest Rates Maturities 2014 Long-term Debt Senior Secured Notes issued...

  • Page 138
    ... of Northwind Holdings. Northwind Re reinsured the risks attributable to specified individual disability insurance policies issued by or reinsured by Provident Life and Accident Insurance Company, Unum Life Insurance Company of America, and The Paul Revere Life Insurance Company (collectively...

  • Page 139
    ... our U.S. qualified defined benefit pension plan to allow a limited-time offer of benefit payouts to eligible former employees with a vested right to a pension benefit. The offer provided eligible former employees, regardless of age, with an option to elect to receive a lump-sum settlement of his or...

  • Page 140
    ... the benefit obligation of the plan during 2013. The discount rate assumption increased from 4.50 percent at December 31, 2012 to 4.60 percent at the remeasurement date, reflecting the change in market interest rates during that period. The expected long-term rate of return on plan assets changed...

  • Page 141
    ...(in millions of dollars) 2015 2014 2015 U.K. Plan 2014 2015 OPEB 2014 Current Liability Noncurrent Liability Noncurrent Asset Underfunded (Overfunded) Status Unrecognized Pension and Postretirement Benefit Costs Net Actuarial Gain (Loss) Prior Service Credit Income Tax Total Included in Accumulated...

  • Page 142
    ... include, but are not limited to, unlisted securities, futures contracts, options, short sales, and investments in securities issued by Unum Group or its affiliates. The invested asset classes, asset types, and benchmark indices for our U.S. qualified defined benefit pension plan is as follows...

  • Page 143
    ... Emerging Markets Fixed Income Securities: U.S. Government and Agencies Corporate State and Municipal Securities Opportunistic Credits Real Estate Alternative Investments: Private Equity Direct Investments Private Equity Funds of Funds Hedge Funds of Funds Cash Equivalents Total Invested Assets...

  • Page 144
    ..., and real estate investments consist of funds that are valued based on the net asset value (NAV) of the underlying holdings. These investments have no unfunded commitments and no specific redemption restrictions. Level 2 fixed income securities are valued using observable inputs through market...

  • Page 145
    ... December 31, 2014 Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in millions of dollars) Total Assets Life Insurance Contracts $- $- $11.3 $11.3 Unum 2015 Annual Report 143

  • Page 146
    ... rate assumption annually for each of our retirement-related benefit plans at the measurement date to reflect the yield on a portfolio of high quality fixed income corporate debt instruments matched against the projected cash flows for future benefits. Our long-term rate of return on plan assets...

  • Page 147
    ... length of time for benefit payments. We derive our assumptions from industry mortality tables. The expected return assumption for the life insurance reserve for our OPEB plan at December 31, 2015 and 2014 is 5.75 percent, which is based on full investment in fixed income securities with an average...

  • Page 148
    ... no voluntary contributions during 2015. We do not expect to make any contributions in 2016. The funding policy for our U.S. non-qualified defined benefit pension plan is to contribute the amount of the benefit payments made during the year. Our expected return on plan assets and discount rate will...

  • Page 149
    ... is determined as follows: 2015 Year Ended December 31 2014 (in millions of dollars, except share data) 2013 Numerator Net Income Denominator (000s) Weighted Average Common Shares - Basic Dilution for Assumed Exercises of Stock Options and Nonvested Stock Awards Weighted Average Common Shares...

  • Page 150
    ... for the years ended December 31, 2015, 2014, and 2013, respectively. During 2014, we retired 60.0 million shares of our treasury stock with an average total cost of $1,451.7 million. Preferred Stock Unum Group has 25.0 million shares of preferred stock authorized with a par value of $0.10 per...

  • Page 151
    ...2013 Expected Volatility (based on our and our peer group historical daily stock prices) Expected Life (equals the performance period) Risk Free Interest Rate (based on U.S. Treasury yields at the date of grant) 22% 3.0 years 0.91% 31% 3.0 years 0.65% 35% 3.0 years 0.38% Unum 2015 Annual Report...

  • Page 152
    ...vesting at the date of retirement eligibility 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, and as such, we measure the value of the award each reporting period based on the...

  • Page 153
    ... in 2015 or 2014. Year Ended December 31 2013 Weighted Average Grant Date Fair Value per Option Expected Volatility (based on historical daily stock prices) Expected Life (based on historical average years to exercise) Expected Dividend Yield (based on the dividend rate at the date of grant) Risk...

  • Page 154
    ...by companies either rated below A- by AM Best or not rated. Reinsurance data is as follows: Year Ended December 31 (in millions of dollars) 2015 2014 2013 Direct Premium Income Reinsurance Assumed Reinsurance Ceded Net Premium Income Ceded Benefits and Change in Reserves for Future Benefits $8,151...

  • Page 155
    ... principal operating business segments: Unum US, Unum UK, and Colonial Life. Our other segments are Closed Block and Corporate. 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...

  • Page 156
    ...and Voluntary Individual Disability Voluntary Benefits Unum UK Group Long-term Disability Group Life Supplemental Colonial Life Accident, Sickness, and Disability Life Cancer and Critical Illness Closed Block Individual Disability Long-term Care All Other 572.4 633.5 1.7 1,207.6 Total Premium Income...

  • Page 157
    ...Unum US Unum UK Colonial Life Closed Block Corporate Total Year Ended December 31, 2015 Premium Income Net Investment Income Other Income Operating Revenue Operating Income (Loss) Interest and Debt Expense Depreciation and Amortization Year Ended December 31, 2014 Premium Income Net Investment...

  • Page 158
    ... $1,755.5 466.8 (418.9) 25.4 0.4 $1,829.2 December 31 (in millions of dollars) 2015 2014 Assets Unum US Unum UK Colonial Life Closed Block Corporate Total Assets $18,242.4 3,432.4 3,776.8 32,992.4 2,145.7 $60,589.7 $18,676.5 3,702.5 3,692.2 33,960.2 2,418.8 $62,450.2 156 Unum 2015 Annual Report

  • Page 159
    ... material revenues or assets attributable to foreign operations other than those reported in our Unum UK segment. We report goodwill in our Unum US segment and in our Unum UK segment, which are the segments expected to benefit from the originating business combinations. At December 31, 2015 and 2014...

  • Page 160
    ... 2014 2013 Operating Revenue Net Realized Investment Gain (Loss) Total Revenue Operating Income Net Realized Investment Gain (Loss) Non-operating Retirement-related Loss Costs Related to Early Retirement of Debt for Corporate Long-term Care Reserve Increase for Closed Block Unclaimed Death Benefits...

  • Page 161
    ... companies to periodically search the Social Security Administrations' Death Master File or escheat unclaimed life insurance benefits until a claim has been submitted. In January 2014, the plaintiff appealed the dismissal of both complaints. In June 2015, the appellate court reinstated the case...

  • Page 162
    ...of insureds who were issued long-term care policies containing an inflation protection feature. After we answered the complaint, the court permitted the plaintiff to file another amended complaint entitled Michael Don, Executor of The Estate of Ruben Don, Leroy Little, by and through his Guardian ad...

  • Page 163
    ...States, with Unum Group as the ultimate parent. These captive reinsurers were established for the limited purpose of reinsuring risks attributable to specified policies issued or reinsured by our life insurance subsidiaries. During 2015, Tailwind Reinsurance Company (Tailwind Re), also an affiliated...

  • Page 164
    ... to regulatory approval. Deposits At December 31, 2015 and 2014, our U.S. insurance subsidiaries had on deposit with U.S. regulatory authorities securities with a book value of $284.1 million and $279.1 million, respectively, held for the protection of policyholders. 162 Unum 2015 Annual Report

  • Page 165
    ... before tax and $453.8 million after tax related to long-term care. • Fourth quarter of 2014 settlement loss of $64.4 million before tax and $41.9 million after tax related to a pension plan amendment. See Notes 6 and 9 for further discussion of the above items. Unum 2015 Annual Report 163

  • Page 166
    ...audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Unum Group and subsidiaries' internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee...

  • Page 167
    ... of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We assessed the effectiveness of our internal control over financial reporting, based on criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of...

  • Page 168
    ... Registered Public Accounting Firm The Board of Directors and Stockholders Unum Group We have audited Unum Group and subsidiaries' internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee of...

  • Page 169
    ... management processes to resume our business operations in the event of a natural catastrophe, cyber attack, or other event. • Increased competition from other insurers and financial services companies due to industry consolidation, new entrants to our markets, or other factors. • Execution risk...

  • Page 170
    ...2012 2011 After-tax Operating Income Net Realized Investment Gain (Loss), Net of Tax Non-operating Retirement-related Loss, Net of Tax Costs Related to Early Retirement of Debt, Net of Tax Reserve Charges for Closed Block, Net of Tax Unclaimed Death Benefits Reserve Increase, Net of Tax Group Life...

  • Page 171
    ... Unum Life Insurance Company of America Portland, Maine Corporate Information J. Paul Jullienne Corporate Secretary 1 Fountain Square Chattanooga, TN 37402 800 718 8824 Colonial Life & Accident Insurance Company Columbia, South Carolina Unum Limited Dorking, England Transfer Agent Computershare...

  • Page 172
    Unum Group 1 Fountain Square Chattanooga, TN 37402 www.unum.com © 2016 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 ...