Unum 2015 Annual Report Download - page 72

Management’s Discussion and Analysis
of Financial Condition and Results of Operations
70 Unum 2015 Annual Report
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 $475 million and $575 million at December 31, 2015 and 2014, respectively. The December 31,
2015 balance, of which approximately $16.8 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 5.7 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 May 2015 and authorizes the
repurchase of up to $750 million of common stock through November 2016, 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. During 2015, we repurchased 12.3 million shares at
a cost of approximately $427 million. The dollar value of shares remaining under the repurchase program was approximately $502 million
at December 31, 2015. See Note 10 of the “Notes to Consolidated Financial Statements” contained herein.
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) and
Fairwind Insurance Company (Fairwind), both of which are affiliated captive reinsurance subsidiaries domiciled in the United States with
Unum Group as the ultimate parent. The ability of Northwind Re and Fairwind 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 and Fairwind.
During 2015, Tailwind Reinsurance Company (Tailwind Re), an affiliated captive reinsurance subsidiary domiciled in the United States,
merged with Unum Life Insurance Company of America (Unum America), a domestic insurance subsidiary of Unum Group, with Unum
America remaining as the surviving company. Following the merger, the majority of the block of group long-term disability business
written by Unum America and previously ceded to Tailwind Re was ceded to an unaffiliated reinsurer. Unum America’s capital adequacy
and ability to pay dividends to Unum Group were not materially impacted by this transaction.