Unum 2015 Annual Report Download - page 84

82 Unum 2015 Annual Report
Quantitative and Qualitative Disclosures About Market Risk
Risk Appetite Policy
Our risk appetite policy describes the types of risks we are willing to take, as well as the amount of enterprise risk exposure we deem
acceptable in pursuit of our goals, with an objective of clearly defining boundaries for our risk-taking activities.
The starting point of our philosophy and approach to our ERM strategy is our corporate strategy. In contrast 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
create comprehensive benefits solutions for employers. We have market leadership positions in the product lines we offer and believe this
combination of focused expertise and experience is a competitive advantage and forms the foundation of our approach to risk management.
We believe our sound and consistent business practices, strong internal compliance program, and comprehensive risk management
strategy enable us to operate efficiently and to identify and address potential areas of risk in our business. We take and manage risks to
achieve our business and strategic objectives, and our risk appetite statement sets boundaries for risk-taking activities that link earnings,
capital, and operational processes, as well as summarizes our most material risk limits and controls. We monitor our risk profile against our
established risk tolerance and limits. Risks falling outside our risk tolerance and limits are reported to the applicable governance group,
where decisions are made pertaining to acceptance of the risk or implementation of remediation plans or corrective actions as deemed
appropriate by that governance group.
Risk Identification and Prioritization
Risk identification and prioritization is an ongoing process, whereby we identify and assess our risk positions and exposures, including
notable risk events. Additionally, we identify emerging risks and analyze how material future risks might affect us. Knowing the potential
risks we face allows us to monitor and manage their potential effects including adjusting our strategies as appropriate and holding capital
levels which provide financial flexibility. Risk and other management committees have primary responsibility for identifying and prioritizing
risks within their respective areas.
We face a wide range of risks, and our continued success depends on our ability to identify and appropriately manage our risk exposures.
For additional information on certain risks that may adversely affect our business, operating results, or financial condition see “Cautionary
Statement Regarding Forward-Looking Statements” contained herein and “Risk Factors” contained in Item 1A of our Annual Report on
Form 10-K for the fiscal year ended December 31, 2015.
Risk and Capital Modeling
We assess material risks, including how they affect us and how individual risks interrelate, to provide valuable information to
management in order that they may effectively manage our risks. We use qualitative and quantitative approaches to assess existing and
emerging risks and to develop mitigating strategies to limit our exposure to both.
We utilize stress testing and scenario analysis for risk management and to shape our business, financial, and strategic planning
activities. Both are key components of our risk appetite policy and play an important role in monitoring, assessing, managing, and
mitigating our primary risk exposures.
In particular, stress testing of our capital and liquidity management strategies enables us to identify areas of high exposure, assess
mitigating actions, develop contingency plans, and guide decisions around our target capital and liquidity levels. For example, we
periodically perform stress tests on certain categories of assets or liabilities to support development of capital and liquidity risk contingency
plans. These tests help ensure that we have a buffer to support our operations in uncertain times and financial flexibility to respond to
market opportunities. Stress testing is also central to reserve adequacy testing, cash flow testing, and asset and liability management.
In addition, we aim to constantly improve our capital modeling techniques and methodologies that are used to determine a level of
capital that is commensurate with our risk profile and to ensure compliance with evolving regulatory and rating agency requirements. Our
capital modeling reflects appropriate aggregation of risks and diversification benefits resulting from our mix of products and business units.
Our internal capital modeling and allocation aids us in making significant business decisions including strategic planning, capital
management, risk limit determination, reinsurance purchases, hedging activities, asset allocation, pricing, and corporate development.