Unum 2015 Annual Report Download - page 23

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Unum 2015 Annual Report
Although our profit margins continue to be pressured by the impact of the low interest rate environment on our net investment income
yields, our invested asset quality remains strong. The net unrealized gain on our fixed maturity securities was $3.7 billion at December 31,
2015 compared to $6.3 billion at December 31, 2014, with the decrease due to an increase in both U.S. Treasury rates and credit spreads
during 2015. The earned book yield on our investment portfolio was 5.40 percent for 2015 compared to a yield of 5.52 percent for 2014.
We believe our capital and financial positions are strong. At December 31, 2015, the RBC ratio for our traditional U.S. insurance
subsidiaries, calculated on a weighted average basis using the NAIC Company Action Level formula, was approximately 400 percent and
generally consistent with the prior year end. During 2015, we repurchased 12.3 million shares of Unum Group common stock at a cost
of approximately $427 million under our share repurchase program. Cash equivalents and marketable securities held at Unum Group
and our other intermediate holding companies, which are a significant source of liquidity for us, were approximately $475 million at
December 31, 2015.
2015 Acquisition of Business
In September 2015, we acquired 100 percent of the common shares and voting interests in National Dental Plan Limited and
associated companies (National Dental) for a total cash purchase price of £35.9 million or $54.3 million. National Dental, a leading
provider of dental insurance in the U.K. workplace, is reported in our Unum UK segment as part of our supplemental product line. The
acquisition of National Dental extends our market reach, broadening our employee benefit offerings in the U.K. This acquisition, the
results of which are included in our financial results and sales for the period subsequent to the date of acquisition, did not have a material
impact on revenue, operating results, or sales for 2015. See Note 13 of the “Notes to Consolidated Financial Statements” contained herein
for further details on the acquisition.
2014 Long-term Care Reserve Increase
Policy reserves for our long-term care block of business are determined using the gross premium valuation method and, prior to the
fourth quarter of 2014, were valued based on assumptions established as of December 31, 2011, the date of the initial loss recognition.
Gross premium valuation assumptions do not change after the date of loss recognition unless reserves are again determined to be deficient.
We undertake a review of policy reserve adequacy annually during the fourth quarter of each year, or more frequently if appropriate,
using best estimate assumptions as of the date of the review.
Included in our fourth quarter of 2014 review was an analysis of our reserve assumptions, including those for the discount rate,
mortality and morbidity rates, persistency, and premium rate increases. Our analysis of reserve discount rate assumptions considered the
continued historic low interest rate environment, future market expectations, and our view of future portfolio yields. The assumptions we
established in 2011 were set at a level that we estimated would be sustainable in a low interest rate environment for three to five years,
with improvements in market yields beginning after the third year. Since that time, however, interest rates continued to hover near historic
lows, and credit spreads tightened. Our assumption update for mortality incorporated the last three years of Company-specific experience
and emerging trends as well as industry data, where available and appropriate, and reflected improvements in life expectancies beyond
what was initially anticipated in 2011. Our morbidity assumptions were updated to reflect trends from our own emerging Company
experience in claim incidence and terminations, as well as trends based on available and appropriate industry data and studies. Our
premium rate increase assumptions were updated to reflect progress-to-date and our on-going rate increase strategy.
Based on our analysis, as of December 31, 2014, we lowered the discount rate assumption to reflect the low interest rate environment
and our revised expectation of future investment portfolio yield rates. Our revised assumptions anticipated the low interest rate environment
persisting for the next three to five years, with a return to more historical averages over the following five year period. We updated our
mortality assumptions to reflect emerging experience due to an increase in life expectancies which increases the ultimate number of people
who will utilize long-term care benefits and also lengthens the amount of time a claimant 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 determined that our
policy and claim reserves should be increased $698.2 million to reflect our current estimate of future benefit obligations. This charge
decreased our 2014 net income $453.8 million.