Unum Group Annual Report 2008

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2008 annual report

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Unum group
1 fountain square
chattanooga, tn 37402

www.unum.com

staying the course

financial highlights
UnUm groUp

2008

2007

2006

(in millions)

per share*

(in millions)

per share*

(in millions)

per share*

income from continuing operations, as adjusted**

$ 857.3

$ 2.51

$ 786.2

$ 2.21

$ 603.3

$ 1.80

net realized investment gain (loss)

(304.1)

(0.89)

regulatory reassessment charges

special tax items and Debt Extinguishment costs

Broker compensation settlements

–

income from continuing operations

553.2

1.62

income from Discontinued operations

–

(43.2)

(34.5)

(36.1)

–

672.4

6.9

(0.12)

(0.10)

–

1.89

0.02

1.5

(267.4)

78.9

(12.7)

403.6

7.4

0.01

(0.79)

0.23

(0.04)

1.21

0.02

net income

$ 553.2

$ 1.62

$ 679.3

$ 1.91

$ 411.0

$ 1.23

total stockholders’ Equity (Book Value)

$6,397.9

$19.32

$8,039.9

$22.28

$7,718.8

$22.53

net Unrealized gain (loss) on securities

(832.6)

(2.51)

net gain on cash flow hedges

458.5

1.38

356.1

182.5

0.99

0.50

534.8

194.2

1.56

0.57

total stockholders’ Equity, as adjusted**

$6,772.0

$20.45

$7,501.3

$20.79

$6,989.8

$20.40

* per share amounts for operating statement Data assume Dilution.

** We analyze our performance using non-gaap financial measures which exclude certain items and the related tax thereon from net income. We believe “income from
continuing operations, as adjusted,” which is a non-gaap financial measure and excludes realized investment gains and losses, which are recurring, and certain other
items as specified, is a better performance measure and a better indicator of the profitability and underlying trends in our business. realized investment gains and losses
are primarily dependent on market conditions and general economic events and are not necessarily related to decisions regarding our underlying business. the exclusion
of certain other items specified above also enhances the understanding and comparability of our performance and the underlying fundamentals in our operations, but
this exclusion is not an indication that similar items may not recur. We also believe that book value per common share excluding unrealized gains and losses on securities
and the net gain or loss on cash flow hedges, which also tend to fluctuate depending on market conditions and general economic trends, is an important measure.

g-73975 (04-09)

10%

all the paper used in this annual report is Elemental chlorine free. the papers used
for the cover and pages 1-16 of this book contain 10% post consumer Waste.

69081_2008AR_CVR.indd 1

3/25/09 8:33:14 AM

2008 annual report

U
n
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m

2
0
0
8
a
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U
a
l

r
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p
o
r
t

Unum group
1 fountain square
chattanooga, tn 37402

www.unum.com

staying the course

financial highlights
UnUm groUp

2008

2007

2006

(in millions)

per share*

(in millions)

per share*

(in millions)

per share*

income from continuing operations, as adjusted**

$ 857.3

$ 2.51

$ 786.2

$ 2.21

$ 603.3

$ 1.80

net realized investment gain (loss)

(304.1)

(0.89)

regulatory reassessment charges

special tax items and Debt Extinguishment costs

Broker compensation settlements

–

income from continuing operations

553.2

1.62

income from Discontinued operations

–

(43.2)

(34.5)

(36.1)

–

672.4

6.9

(0.12)

(0.10)

–

1.89

0.02

1.5

(267.4)

78.9

(12.7)

403.6

7.4

0.01

(0.79)

0.23

(0.04)

1.21

0.02

net income

$ 553.2

$ 1.62

$ 679.3

$ 1.91

$ 411.0

$ 1.23

total stockholders’ Equity (Book Value)

$6,397.9

$19.32

$8,039.9

$22.28

$7,718.8

$22.53

net Unrealized gain (loss) on securities

(832.6)

(2.51)

net gain on cash flow hedges

458.5

1.38

356.1

182.5

0.99

0.50

534.8

194.2

1.56

0.57

total stockholders’ Equity, as adjusted**

$6,772.0

$20.45

$7,501.3

$20.79

$6,989.8

$20.40

* per share amounts for operating statement Data assume Dilution.

g-73975 (04-09)

10%

all the paper used in this annual report is Elemental chlorine free. the papers used
for the cover and pages 1-16 of this book contain 10% post consumer Waste.

69081_2008AR_CVR.indd 1

3/25/09 8:33:14 AM

FINANCIAL
strength for the future

(cid:54)(cid:91)(cid:105)(cid:90)(cid:103)(cid:34)(cid:73)(cid:86)(cid:109)(cid:21)
(cid:68)(cid:101)(cid:90)(cid:103)(cid:86)(cid:105)(cid:94)(cid:99)(cid:92)(cid:21)(cid:62)(cid:99)(cid:88)(cid:100)(cid:98)(cid:90)(cid:31)
(cid:25)(cid:21)(cid:94)(cid:99)(cid:21)(cid:98)(cid:94)(cid:97)(cid:97)(cid:94)(cid:100)(cid:99)(cid:104)

Unum’s vision is to be the leading provider of

3
.
7
5
8
$

2
.
6
8
7
$

employee benefits products and services that

help employers manage their businesses and

3
.
3
0
6
$

employees protect their families and livelihoods.

And for more than 160 years, we have been

doing just that. With disability, long-term care,

life and voluntary insurance products and

services, we have helped companies and their

employees throughout the U.S. and U.K. plan for
08

Behind our forward-thinking benefits solutions is

As a result of our consistent execution and overall

a commitment to financial strength, backed up by

financial strength, Standard & Poor’s upgraded Unum’s

consistent operating results, strong investment

issuer credit ratings and the financial strength ratings

performance and significant flexibility.

of our insuring subsidiaries in 2008, while A.M. Best,

In 2008, Unum generated $857.3 million, or

Fitch, and Moody’s all raised their outlooks for the

$2.51 per share, in after-tax operating income, capping

company during the year.

a consistent, steady improvement in operating results

Although Unum is not immune to economic volatility,

since 2005. Over the past three years, the successful

our operating performance, investment results and

execution of Unum’s business plan has resulted in

financial flexibility have positioned us well in the

more than $1.64 billion in net income, enabling the

current economic environment.

company to further build on its strong financial position.

Unum’s investment performance for 2008 was solid

as well. Our portfolio, which is designed to match the

long-term nature of our business, has been cited as

having among the lowest risk profiles in our industry.

It consists of historically low levels of high-yield bonds,

no exposure to subprime mortgages, and virtually no

exposure to the asset classes that plagued financial

institutions throughout the year.

Our capital management strategy is focused on

providing a buffer to support our operations in

uncertain times, as well as on maintaining the

financial flexibility to respond to appropriate oppor-

tunities in the marketplace. Under this strategy, we

were able to execute and complete a $700 million

Behind our forward-thinking

share repurchase in 2008, and by year-end we

benefits solutions is a commitment

exceeded our targets for risk-based capital, leverage

to financial strength, backed up

and holding company liquidity.

by consistent operating results,

strong investment performance

and significant financial flexibility.

Capital Management Criteria

Risk-based capital ratio for traditional U.S. insurance companies

Leverage*

Holding company liquidity

Target

>300%

<25%

December 31, 2008

332%

21.5%

Approximately $300 million

$526 million

* our leverage ratio, when calculated excluding the non-recourse debt and associated capital of tailwind holdings, llc
and northwind holdings, llc, was 21.5 percent at December 31, 2008. our leverage ratio, when calculated using
consolidated debt to total consolidated capital, was 26.6 percent at December 31, 2008.

the road ahead.

(cid:58)(cid:86)(cid:103)(cid:99)(cid:94)(cid:99)(cid:92)(cid:104)(cid:21)(cid:69)(cid:90)(cid:103)(cid:21)(cid:72)(cid:93)(cid:86)(cid:103)(cid:90)(cid:31)

3
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7
5
8
$

2
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6
8
7
$

3
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3
0
6
$

1
5
.
2
$

1
2
.
2
$

0
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.
1
$

* see previous discussion of the non-gaap financial measure
“income from continuing operations, as adjusted.”

69081_2008AR_CVR.indd 2

(cid:58)(cid:86)(cid:103)(cid:99)(cid:94)(cid:99)(cid:92)(cid:104)(cid:21)(cid:69)(cid:90)(cid:103)(cid:21)(cid:72)(cid:93)(cid:86)(cid:103)(cid:90)(cid:31)

stockholder
information

principal subsidiaries

provident life and
accident insurance company
Chattanooga, Tennessee

corporate offices
1 Fountain Square
Chattanooga, TN 37402
423 294 1011

2211 Congress Street
Portland, ME 04122
207 575 2211

18 Chestnut Street
Worcester, MA 01608
774 437 4441

655 N. Central Avenue
Suite 900
Glendale, CA 91203
800 424 2008

1200 Colonial Life Blvd.
Columbia, SC 29210
803 798 7000

Milton Court
Dorking, Surrey RH4 3LZ
England
011 44 1306 887766

Unum life insurance
company of america
Portland, Maine

the paul revere life
insurance company
Worcester, Massachusetts

colonial life & accident
insurance company
Columbia, South Carolina

first Unum life insurance company
New York, New York

provident life and casualty
insurance company
Chattanooga, Tennessee

provident investment management, llc
Chattanooga, Tennessee

Unum limited
Dorking, England

stock performance
The following graph shows a five year comparison of cumulative total returns for our
common stock’s historical performance, the S&P 500 Index, and the Insurance Index
(non-weighted average of “total returns” from the S&P Life & Health Index and the S&P
Multi-line Index). Past performance is not an indication of future results.

$200

175

150

125

100

Unum Group

S&P 500

2003

$100.00

Insurance Index

$100.00

2004

$116.03

$110.88

$112.69

2005

$149.58

$116.33

$130.97

2006

$138.80

$134.70

$147.58

2007

$160.93

$142.10

$149.38

2008

$127.65

$ 89.53

$ 55.97

As of February 23, 2009, there were 15,469 registered holders of common stock.

contact information

investor relations
Thomas A.H. White
Senior Vice President, Investor Relations
1 Fountain Square
Chattanooga, TN 37402
423 294 8996

corporate information
Susan N. Roth
Corporate Secretary
1 Fountain Square
Chattanooga, TN 37402
800 718 8824

transfer agent
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
800 446 2617

common stock information
Common stock of Unum Group is traded
on the New York Stock Exchange.
The stock symbol is UNM.

nYsE cEo certification
Unum Group has filed the certification of its chief
executive officer and chief financial officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
as exhibits to its Annual Report on Form 10-K for
the year ended December 31, 2008. In June 2008,
Unum Group’s chief executive officer, as required
by Section 303A.12(a) of the NYSE Listed Company
Manual, certified to the NYSE that he was not
aware of any violation by the Company of the
NYSE’s corporate governance listing standards.

Quarterly market prices and dividends
paid per share of common stock are as follows:

Market Price
High

Low Dividend

$24.50 $19.22
20.40
19.43
9.33

24.99
27.50
26.20

$0.075
0.075
0.075
0.075

$23.40
28.20
26.75
26.67

$19.79
22.83
22.02
22.36

$0.075
0.075
0.075
0.075

2008
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter

2007
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter

3/25/09 8:33:14 AM

FINANCIAL
strength for the future

Unum’s vision is to be the leading provider of

3
.
7
5
8
$

2
.
6
8
7
$

employee benefits products and services that

help employers manage their businesses and

3
.
3
0
6
$

employees protect their families and livelihoods.

And for more than 160 years, we have been

doing just that. With disability, long-term care,

life and voluntary insurance products and

services, we have helped companies and their

employees throughout the U.S. and U.K. plan for
08

Behind our forward-thinking benefits solutions is

As a result of our consistent execution and overall

a commitment to financial strength, backed up by

financial strength, Standard & Poor’s upgraded Unum’s

consistent operating results, strong investment

issuer credit ratings and the financial strength ratings

performance and significant flexibility.

of our insuring subsidiaries in 2008, while A.M. Best,

In 2008, Unum generated $857.3 million, or

Fitch, and Moody’s all raised their outlooks for the

$2.51 per share, in after-tax operating income, capping

company during the year.

a consistent, steady improvement in operating results

Although Unum is not immune to economic volatility,

since 2005. Over the past three years, the successful

our operating performance, investment results and

execution of Unum’s business plan has resulted in

financial flexibility have positioned us well in the

more than $1.64 billion in net income, enabling the

current economic environment.

company to further build on its strong financial position.

Unum’s investment performance for 2008 was solid

as well. Our portfolio, which is designed to match the

long-term nature of our business, has been cited as

having among the lowest risk profiles in our industry.

It consists of historically low levels of high-yield bonds,

no exposure to subprime mortgages, and virtually no

exposure to the asset classes that plagued financial

institutions throughout the year.

Our capital management strategy is focused on

providing a buffer to support our operations in

uncertain times, as well as on maintaining the

financial flexibility to respond to appropriate oppor-

tunities in the marketplace. Under this strategy, we

were able to execute and complete a $700 million

Behind our forward-thinking

share repurchase in 2008, and by year-end we

benefits solutions is a commitment

exceeded our targets for risk-based capital, leverage

to financial strength, backed up

and holding company liquidity.

by consistent operating results,

strong investment performance

and significant financial flexibility.

Capital Management Criteria

Risk-based capital ratio for traditional U.S. insurance companies

Leverage*

Holding company liquidity

Target

>300%

<25%

December 31, 2008

332%

21.5%

Approximately $300 million

$526 million

the road ahead.

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3
.
7
5
8
$

2
.
6
8
7
$

3
.
3
0
6
$

1
5
.
2
$

1
2
.
2
$

0
8
.
1
$

* see previous discussion of the non-gaap financial measure
“income from continuing operations, as adjusted.”

69081_2008AR_CVR.indd 2

(cid:58)(cid:86)(cid:103)(cid:99)(cid:94)(cid:99)(cid:92)(cid:104)(cid:21)(cid:69)(cid:90)(cid:103)(cid:21)(cid:72)(cid:93)(cid:86)(cid:103)(cid:90)(cid:31)

stockholder
information

principal subsidiaries

provident life and
accident insurance company
Chattanooga, Tennessee

corporate offices
1 Fountain Square
Chattanooga, TN 37402
423 294 1011

2211 Congress Street
Portland, ME 04122
207 575 2211

18 Chestnut Street
Worcester, MA 01608
774 437 4441

655 N. Central Avenue
Suite 900
Glendale, CA 91203
800 424 2008

1200 Colonial Life Blvd.
Columbia, SC 29210
803 798 7000

Milton Court
Dorking, Surrey RH4 3LZ
England
011 44 1306 887766

Unum life insurance
company of america
Portland, Maine

the paul revere life
insurance company
Worcester, Massachusetts

colonial life & accident
insurance company
Columbia, South Carolina

first Unum life insurance company
New York, New York

provident life and casualty
insurance company
Chattanooga, Tennessee

provident investment management, llc
Chattanooga, Tennessee

Unum limited
Dorking, England

$200

175

150

125

100

Unum Group

S&P 500

2003

$100.00

Insurance Index

$100.00

2004

$116.03

$110.88

$112.69

2005

$149.58

$116.33

$130.97

2006

$138.80

$134.70

$147.58

2007

$160.93

$142.10

$149.38

2008

$127.65

$ 89.53

$ 55.97

As of February 23, 2009, there were 15,469 registered holders of common stock.

contact information

investor relations
Thomas A.H. White
Senior Vice President, Investor Relations
1 Fountain Square
Chattanooga, TN 37402
423 294 8996

corporate information
Susan N. Roth
Corporate Secretary
1 Fountain Square
Chattanooga, TN 37402
800 718 8824

transfer agent
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
800 446 2617

common stock information
Common stock of Unum Group is traded
on the New York Stock Exchange.
The stock symbol is UNM.

Quarterly market prices and dividends
paid per share of common stock are as follows:

Market Price
High

Low Dividend

$24.50 $19.22
20.40
19.43
9.33

24.99
27.50
26.20

$0.075
0.075
0.075
0.075

$23.40
28.20
26.75
26.67

$19.79
22.83
22.02
22.36

$0.075
0.075
0.075
0.075

2008
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter

2007
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter

3/25/09 8:33:14 AM

In spite of the uncertain economic
environment, Unum continues to
make steady and disciplined progress,
executing on our business plans and
strengthening our financial position.

We are maintaining a constant focus on what
we do best – providing benefits products and
services that help businesses and their employees
stay on track, too.

For more than 160 years, Unum has extended
our expertise on behalf of businesses and
individuals, maintained a steadfast commitment
to benefits education, created opportunities for
individuals to obtain the coverage they need
and offered protection from the unexpected.

It’s how we keep our promise to deliver
Better Benefits at Work.

69081_2008AR_NAR.indd 1

3/25/09 9:58:55 AM

To Our Stockholders,
Customers and Colleagues

Tom Watjen

2008 marked five full years since I became president and chief executive
officer of Unum. During that time we have seen dramatic change, both
at the company and, more recently, in the global economy.

Over these past five years, Unum has made significant strides forward.
We have clarified our strategy and developed simple, focused plans to
seize on the opportunities we see in the market. By consistently executing
on our plans, we have diversified our business, significantly improved
our operating results, strengthened our financial position, and resolved
a number of legacy regulatory and legal issues, while at the same
time establishing a culture of customer service, strict compliance, risk
management and continuous improvement. In short, we are a very
different and much stronger company today.

This required significant change – change that at the time was often

painful for the company and our people. Looking back, though, the
actions we have taken since 2003 have left us better positioned to
weather what has become the worst financial crisis of our lifetime.

Through the efforts of our 10,000 employees in the United States
and the United Kingdom, we have made solid progress in just about
every area of the company. Although we ended the year in a very healthy
financial position, I can assure you that our people are not complacent.
The current environment presents some unique challenges (and
opportunities) for our company and industry, and we can ill afford to
relax. I know that given the challenges we have successfully faced in
the past, we can overcome whatever hurdles lie ahead and capitalize
on the opportunities that present themselves.

While this challenging economic environment has thus far had a very
manageable impact on our results, it has nevertheless had a dramatic
impact on our stock price, just as it has on other companies in our industry.

In summary, 2008 was a good
year for Unum. We accomplished
what we said we would accom-
plish, and we responded to the
challenges of the economy by
continuing to focus on serving
our customers and adhering to
the financial discipline that has
served us so well these past
several years.

69081_2008AR_NAR.indd 2

3/25/09 8:13:05 AM

I feel confident that
we have the business
plan, determination and
resources to successfully
maneuver through this
environment.

Even though we continued to generate solid results throughout
2008, our stock price declined 21.8 percent for the year. While
this decline was less than the market and significantly less than
our industry peers, it’s still disappointing to see that the hard
work of our people and the results we have generated are not
yet recognized in the market. However, I’m confident that as we
continue to generate solid results and the market environment
improves, our stockholders will be rewarded.

A yeAr Of COnTInUed prOgreSS
Looking back on the past year, the result that I am most pleased
with is the consistency and breadth of our performance, including:

• Each of our businesses continued to deliver strong

operating results;

• Our investment portfolio has held up well in this

environment; and

• We comfortably exceeded our targets for capital and

liquidity, and in doing so maintained our financial flexibility.

This past year our operating businesses – Unum US, Unum UK
and Colonial Life – produced operating income of nearly $1.3 billion,
a 14.6 percent increase over 2007. Highlights included:

Unum US
Operating income for Unum US, our largest business and
a longtime market leader in group benefits, reached
$684 million for the year with continued improvement in
the group disability, supplemental and voluntary lines.

Unum UK
Unum UK, the leader in disability insurance throughout
Great Britain, reported operating income of $324 million,
which was lower than a year ago, primarily due to the
decline in the exchange rate of the British pound to the
U.S. dollar. Aside from the exchange rate, the results were
generally in line with our long-term expectations.

Colonial Life
Operating earnings at Colonial Life, a leading provider of
voluntary benefits in the U.S., increased 9.1 percent to
$268 million, continuing the strong level of profitability
we’ve seen in this business over the last several years.

While 2008 presented our investment team with some very
unique challenges, we were as prepared as we could have been
for the “tsunami” that ensued, and I am very pleased with our
performance this past year. Highlights include:

• Net investment income of $2.4 billion was generally flat

with last year;

• The quality of our portfolio was unchanged, with the

weighted-average credit quality remaining a very solid
A2; and

• Our investment losses were well below our peers.

Never in my business career have financial strength and
flexibility been more important than they are today. This past
year we successfully completed a $700 million share repurchase
and still closed the year well in excess of our capital guidelines.
I am especially pleased to see that the credit rating agencies
have recognized our improved operating and financial position
by upgrading our credit rating or outlook. The actions we have
taken to build a strong, flexible balance sheet should continue
to serve us well in the future.

In summary, 2008 was a good year for Unum. We accomplished

what we said we would accomplish, and we responded to the
challenges of the economy by continuing to focus on serving our
customers and adhering to the financial discipline that has served
us so well these past several years. Clearly, this would not have
been possible without all of our people staying focused on the
business at hand. I am convinced that we have the best people
and leadership team in the industry.

69081_2008AR_NAR.indd 3

3/20/09 2:37:10 PM

Today more than ever, middle-
and lower-income people face
dangerous gaps in their financial
security. Employer-sponsored
benefits are one of the primary
backstops against financial
catastrophe for these people.

A yeAr Of greAT ChALLenge
(And OppOrTUnITy)
While the seeds of recovery are being sown and we are seeing
some early signs of economic and market stabilization, it will
clearly take time for confidence to be fully restored. We believe
that we are well-positioned to support the needs of our customers,
create value for our stockholders and continue to create a
positive work environment for our employees – regardless of
the economic environment.

Our business customers and their employees are certainly being
impacted by the challenging economic environment both in the
U.S. and the U.K. For this reason, supporting the ever-changing
needs of our customers has never been more important. We must
continue to provide the product and service solutions that meet
their changing needs and remain the trusted partner that has been
the foundation of our success in the past. In short, we must continue
to do the things we have been doing. This is no time to slow our
product development efforts or reduce our commitment to this
business. Each of our businesses intends to continue to take the
actions needed to build upon our market leadership.

I can assure our customers that we will not get distracted,
and you can look for us to go even further in ensuring that we
are there in your time of need.

This environment is also especially challenging for our
stockholders. While our stock has generally continued to outperform
both the market and our peers, I am certainly not pleased with
where it is trading today. Still, I continue to believe that the course
we have set for the company is very shareholder-friendly. Our
approach the past several years of focusing on disciplined,
profitable growth with a sharp emphasis on risk management
has served us well and should also eventually benefit our
stockholders. We are today a better capitalized and more diversified
company, one that is better positioned for today’s challenging
environment. While I continue to believe that our present valuation
is impacted more by the broader market than by our own
performance, there are a couple of specific concerns that I know
have weighed on the stock.

The first is the impact of the softening economy on group
disability profitability. While historically this has been an important
issue, we believe the combination of the diversity of our company
(Unum US group disability last year comprised less than 16 percent
of total company operating income), the more disciplined approach
we have taken with this business during the past several years
and the consistent performance of our claims operations should

allow us to weather any prolonged economic slowdown. Although
we have not yet seen any material impact from the economy
on our disability line, we continue to monitor our results and are
prepared to take action if we see that change.

The second issue is the impact of the economy on our
investment portfolio and capital position. Again, while this is an
understandable concern in this environment, I believe we entered
this period with a strong balance sheet. Our investment portfolio
lacks exposure to asset classes generally responsible for industry
losses, and the capital we have accumulated exceeds our targets.
We believe this excess capital positions us well to fund whatever
investment losses may occur during these challenging times.

My greatest comfort in this environment comes because I have
faith in our people, who have never been more engaged in the
business. At a time of uncertainty throughout the financial services
industry, there is probably nothing more important to our future
success than the focused, committed team I have the pleasure of
working with. While I continue to feel that a recovery in the economy
will be slow in coming, I am confident that our people will remain
focused on doing the things that brought us to this point, and,
in so doing, we will generate value for all of our stakeholders.

AbOve The frAy, An IndUSTry wITh pUrpOSe
While it’s often very difficult to look beyond the crisis of the
moment, I believe strongly that our industry, which has always
played a vital role in the economies of both the U.S. and the U.K.,
will be called on to play an even greater role in the future. In the
U.S., this includes:

• Being the primary protection for individuals and families,
providing more than $60 billion in life insurance benefits
and $16 billion in disability benefits; and

• Serving as a primary long-term investor in the economy,
supporting capital investment in both the public and
private sectors.

Our company continues to serve in an increasingly important

niche of the life insurance market. The employer-sponsored
benefits market (where insurance coverage is offered by an
employer to its employees and can either be paid for by the
employer or the employee) represents, in my view, the single
most effective way to provide all workers – but especially lower-
and middle-income people – with the information and options
to protect themselves and their families.

Today more than ever, middle- and lower-income people face

dangerous gaps in their financial security. Employer-sponsored

69081_2008AR_NAR.indd 4

3/20/09 2:37:10 PM

By no means should this suggest that we are complacent –
this environment is still too challenging for that. While we have
not yet seen any material impact on our operating results from
the economy or from aggressive competitive actions, we are not
immune to feeling the effects of both. Still, I feel confident that
we have the business plan, determination and resources to
successfully maneuver through this environment, and I want to
thank our management team and the 10,000 people in our
company who helped make this past year’s accomplishments
possible and who have positioned us well for the future.

I’d also like to especially recognize our chief financial officer

Bob Greving, who has announced his intention to retire later
this year, for his outstanding contribution to the company. Bob
has been an integral part of our senior leadership team for more
than a decade, and he has been instrumental in helping us
build the strong financial foundation we enjoy today. We thank
Bob for his many contributions and wish him a happy and
healthy retirement.

As I said, I’m confident that by continuing to execute on our
business plan, we can successfully meet the challenges that lie
ahead. We know it won’t be easy, but our vision is clear, our focus
is unwavering and our employees are committed to doing what it
takes to keep us on the right track.

On behalf of all of us at Unum, I want to thank you for your

continued support of our company.

Regards,

Thomas R. Watjen
President and Chief Executive Officer

benefits are one of the primary backstops against financial
catastrophe for these people. For many of them, the only
protection they receive is through the workplace.

The growing gap in financial security can place even further
pressure on government resources already facing funding and
budgetary pressures, which is why we at Unum are advocates
for continued cooperation between the public and private sectors
to address this critical problem. Employers can help create an
environment where working individuals can better understand
the need for benefits and provide a convenient and inexpensive
venue to offer them. Private industry can work with government
agencies to raise the visibility of these issues and identify the
steps that can be taken to address the growing financial security
problem in our markets. Governments can continue to offer
incentives for employers to provide affordable and easily accessible
coverage through the workplace and hopefully expand those
incentives to encourage individuals to take greater responsibility
for their individual and family welfare.

In 2008, we began, along with our industry trade groups and
other benefits providers, to raise awareness of our industry’s role
in the broader economy. This year, you’ll see and hear more from
us as we take an even more active role in enhancing awareness
of the issues, as well as the role our industry can play today and
in the future.

The rOAd AheAd
In closing, in spite of our solid operating performance it’s hard to
feel good about things when our stock value has suffered. While
it is some consolation that our stock has performed better than
the market and our peers, we recognize that we must work even
harder in 2009 to create value for our stockholders. I’m convinced
that we are well-positioned to navigate these challenging times –
a confidence that is grounded in a strong foundation, including:

• Leadership positions in businesses that fulfill a very
important need and that, in fact, may well play an
even more vital role in the future;

• Solid operating plans for each of our businesses, plans
that in the past have positioned us to produce solid
financial results;

• A strong and flexible balance sheet, with a well-positioned
investment portfolio and excess capital that provides us
a cushion in these uncertain times; and

• A stable organization, one that has been tested before

and doesn’t lose focus on serving customers and building
value for our stockholders.

69081_2008AR_NAR.indd 5

3/20/09 2:37:10 PM

5
5

exp

69081_2008AR_NAR.indd 6

3/20/09 2:37:11 PM

Exp

ErTisE

(A Vast Network Of Benefits Knowledge)

Unum partners with brokers and other human resource and benefits

professionals who have extensive knowledge of the employee benefits

landscape. Together, we not only evaluate what employers and employees

need, but also design the best solutions to meet those needs.

We help both employers and their employees make the most of their

benefits programs with products that are uniquely suited to meet the

demands of today’s diverse workplace, as well as tools they need to

choose the benefits that can most effectively protect their lifestyle and

provide financial security.

The combined expertise of these diverse benefits professionals helps us

deliver on our commitment with education, enrollment services and

industry-leading claims support that meet the evolving needs of both

employers and the employees.

69081_2008AR_NAR.indd 7

3/25/09 10:29:28 AM

edUC

69081_2008AR_NAR.indd 8

3/20/09 2:37:14 PM

edUC ATIOn

(Communicating The role And value Of benefits)

Many people assume they don’t need protection or simply do not have a

solid understanding of what type of protection is available to them. At

Unum, we are committed to helping individuals gain a better understanding

of the financial risks they may face – as well as the best, most cost-effective

ways to protect against those risks.

Our focus is on educating employers and their employees about the

benefits they have as well as any possible gaps that may exist in their

protection. by sharing information about benefits solutions and exploring

the ways those solutions fit into the broader financial picture for individuals

and their families, we help people evaluate their own benefits needs

and make informed choices.

69081_2008AR_NAR.indd 9

3/20/09 2:37:17 PM

OppOr

69081_2008AR_NAR.indd 10

3/20/09 2:37:20 PM

OppOr

TUnITy

(providing Access To Important protection)

Working people and their families, particularly those with middle- and

lower-incomes, may be overlooked by many providers of financial

services and other products. Therefore, many of those who have

protection against financial uncertainty acquire that protection through

the workplace. By partnering with employers to offer straightforward

access to products, Unum creates opportunities for individuals to

easily obtain the coverage they need to protect their lifestyle and

provide financial security.

But Unum’s value goes well beyond simply providing access to

benefits. We help workers protect the financial foundation they have

built by making the world of benefits easier to afford, understand and

navigate. And we offer employers the ability to provide flexible, broad

benefits options to their employees, giving them tools to strengthen

their businesses and build a stable workforce.

In these uncertain economic times, the need to address shrinking

financial safety nets has never been more important – and the need

for employees to have access to benefits in the workplace has never

been more apparent.

69081_2008AR_NAR.indd 11

3/25/09 8:12:24 AM

protection

69081_2008AR_NAR.indd 12

3/25/09 8:13:37 AM

proTecTion

(Safeguarding What Matters Most)

Most people today are facing unprecedented gaps in their financial safety

nets. The combination of low savings rates, high credit card debt and

shrinking home equity values means millions of people have little financial

cushion in the event something unexpected happens.

For many, employer-sponsored benefits are the primary defense against

the potentially catastrophic financial fallout of death, illness and injury.

With a full array of benefits solutions, Unum not only protects financially

vulnerable workers and their families during uncertain times, but we

also help businesses build a more stable, successful workforce.

Delivering on the promises we have made to the people who place

their trust in us is our most important mission. We do so not only

through our portfolio of products, but also through the caring service

our benefits professionals provide during some of the most difficult

times in people’s lives.

69081_2008AR_NAR.indd 13

3/25/09 8:12:40 AM

Providing Solutions To
BEnEfiTS nEEdS

As one of the world’s leading providers of
benefits that are distributed throughout the
workplace, Unum helps protect more than
25 million people throughout the United
States and United Kingdom when illness
or injury occurs.

Our disability, long-term care, life and voluntary product
offerings are supported by 10,000 professionals with
an unwavering commitment to meeting the needs of
employers and their employees through three distinct,
but similarly focused, businesses.

Unum US is the market leader in both group and
individual disability insurance and group long-term
care, as well as one of the largest providers of group
life and voluntary benefits – products that are
uniquely suited to meet the demands of today’s
diverse workforce.

Unum UK is a leading provider of group disability,
group life and individual disability benefits in the U.K.,
helping companies protect their businesses by protecting
their workforces from the impact of illness or injury.
Unum UK is also a market innovator in vocational
rehabilitation services that help ease the disruption to
both businesses and employees by enabling them
to return to full capacity as soon as they are able.

Kevin McCarthy
President and
Chief Executive Officer
Unum US

Susan Ring
President and
Chief Executive Officer
Unum UK

69081_2008AR_NAR.indd 14

3/25/09 8:13:59 AM

Randy Horn
President and
Chief Executive Officer
Colonial Life

And Colonial Life is one of the nation’s leading
providers of voluntary worksite benefits – benefits for
employees and their families that are sold through the
workplace. Colonial Life’s market leadership has been
built on establishing one-to-one relationships that
educate employers and their employees on the benefits
they have as well as any coverage gaps that may exist.
Together, we are committed to developing targeted

solutions to help businesses better manage the
challenges that are driving change in the global
workplace – and we are focused on navigating the
changing benefits landscape by offering products
and services that help employees throughout the
U.S. and U.K. plan for the road ahead.

In 2008, we paid a combined $6 billion in benefits

to individuals and families who were impacted by
life-changing events.

Unum US
Unum UK
Colonial Life

Going forward, more than ever before employers

will want benefits that can help them attract and
retain quality employees and solve human resource
challenges, such as managing an increasingly diverse
workforce and easing the pressure of rising health
care costs. At the same time, individuals will continue
to look for simplicity in their benefits and help with
understanding the choices available to them.

At Unum, we are providing solutions that enable both

employers and their employees to “stay the course.”

2008

$6 billion in
benefits PAiD to
inDiviDuAls AnD
fAmilies imPActeD by
life-cHAnging events

69081_2008AR_NAR.indd 15

3/25/09 9:59:48 AM

Jon S. fossel
Chairman of the Board of the Company
Trustee, Retired Chairman and
Chief Executive Officer, OppenheimerFunds
Denver, Colorado

e. Michael Caulfield
Former President, Mercer
Human Resource Consulting
Madison, New Jersey

pamela h. godwin
President, Change Partners, Inc.
Havertown, Pennsylvania

ronald e. goldsberry
Deloitte Consulting
Detroit, Michigan

Kevin T. Kabat
President, Chief Executive Officer
and Chairman, Fifth Third Bancorp
Cincinnati, Ohio

Thomas Kinser
Retired President and Chief Executive Officer,
BlueCross BlueShield of Tennessee
Chattanooga, Tennessee

gloria C. Larson
President, Bentley University
Waltham, Massachusetts

A.S. MacMillan, Jr.
Chief Executive Officer, Triaxia Partners, Inc.
Atlanta, Georgia

edward J. Muhl
Retired National Leader,
PricewaterhouseCoopers LLP
Bonita Springs, Florida

Michael J. passarella
Retired Managing Partner,
PricewaterhouseCoopers LLP
New York, New York

william J. ryan
Chairman, TD Banknorth Inc.
Portland, Maine

Thomas r. watjen
President and Chief Executive Officer
of the Company
Chattanooga, Tennessee

Committees of the board

board of
directors

finance Committee
E. Michael Caulfield, Chairperson
Ronald E. Goldsberry
Kevin T. Kabat
Michael J. Passarella
William J. Ryan

regulatory Compliance
Committee
Gloria C. Larson, Chairperson
Kevin T. Kabat
A.S. MacMillan, Jr.
Edward J. Muhl

Audit Committee
Michael J. Passarella, Chairperson
E. Michael Caulfield
Thomas Kinser
Gloria C. Larson

human Capital Committee
A.S. MacMillan, Jr., Chairperson
Pamela H. Godwin
Thomas Kinser
Edward J. Muhl

governance Committee
William J. Ryan, Chairperson
Pamela H. Godwin
Ronald E. Goldsberry

robert O. best
Executive Vice President,
Chief Operating Officer, Unum US

e. Liston bishop III
Executive Vice President and
General Counsel

robert C. greving
Executive Vice President,
Chief Financial Officer and Chief Actuary

eileen C. farrar
Senior Vice President,
Human Resources

Joseph r. foley
Senior Vice President and
Chief Marketing Officer

b. franklin williamson
Senior Vice President,
Capital Management and
Chief Investment Officer

Senior
Officers

Thomas r. watjen
President and Chief Executive Officer

randall C. horn
President and Chief Executive Officer,
Colonial Life

Kevin p. McCarthy
President and Chief Executive Officer,
Unum US

Susan L. ring
President and Chief Executive Officer,
Unum UK

69081_2008AR_NAR.indd 16

3/20/09 2:37:32 PM

Unum
2008

Financial Review

18 Selected Financial Data

Management’s Discussion and Analysis
of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures
About Market Risk

94 Consolidated Balance Sheets

96 Consolidated Statements of Income

97 Consolidated Statements of Stockholders’ Equity

98 Consolidated Statements of Cash Flows

Consolidated Statements
of Comprehensive Income (Loss)

100 Notes to Consolidated Financial Statements

149

Reports of Independent Registered
Public Accounting Firm and
Management’s Annual Report on
Internal Control over Financial Reporting

152

Cautionary Statement Regarding
Forward-Looking Statements

69081_2008AR_FIN.indd 17

3/26/09 12:02:02 PM

Unum
2008

Selected Financial Data

(in millions of dollars, except share data)

2008

2007

2006

2005

2004

At or for the Year Ended December 31

Statement of Operations Data

Revenue

Premium Income

Net Investment Income

Net Realized Investment Gain (Loss)

Other Income

Total

Benefits and Expenses

$ 7,783.3

$ 7,901.1

$ 7,948.2

$ 7,815.6

$ 7,839.6

2,389.0

2,409.9

2,320.6

2,188.3

2,158.7

(465.9)

275.9

(65.2)

274.1

2.2

264.3

(6.7)

262.1

29.2

260.3

9,982.3

10,519.9

10,535.3

10,259.3

10,287.8

Benefits and Change in Reserves for Future Benefits (1)

6,626.4

6,988.2

7,577.2

7,083.2

7,248.4

Commissions

Interest and Debt Expense (2)

Other Expenses (3)

Total

Income (Loss) from Continuing Operations Before Income Tax

Income Tax (Benefit) (4)

Income (Loss) from Continuing Operations

Income (Loss) from Discontinued Operations (5)

Net Income (Loss)

Balance Sheet Data

Assets (6)

Long-term Debt

853.3

156.7

1,521.9

9,158.3

824.0

270.8

553.2

—

841.1

241.9

819.0

217.6

804.7

208.0

842.3

207.1

1,451.5

1,456.1

1,469.5

2,265.7

9,522.7

10,069.9

9,565.4

10,563.5

997.2

324.8

672.4

6.9

465.4

61.8

403.6

7.4

693.9

189.9

504.0

9.6

(275.7)

(74.3)

(201.4)

(51.6)

$ 553.2

$ 679.3

$ 411.0

$ 513.6

$ (253.0)

$49,417.4

$52,701.9

$52,977.8

$51,975.8

$50,905.5

$ 2,259.4

$ 2,515.2

$ 2,659.6

$ 3,261.6

$ 2,862.0

Accumulated Other Comprehensive Income (Loss)

$ (958.2)

$ 463.5

$ 612.8

$ 1,163.5

$ 1,481.1

Other Stockholders’ Equity

Total Stockholders’ Equity

7,356.1

7,576.4

7,106.0

6,200.4

5,743.0

$ 6,397.9

$ 8,039.9

$ 7,718.8

$7,363.9

$ 7,224.1

69081_2008AR_FIN.indd 18

3/26/09 12:02:02 PM

Selected Financial Data

Unum 2008

Per Share Data

Income (Loss) from Continuing Operations

Basic

Assuming Dilution

Income (Loss) from Discontinued Operations

Basic

Assuming Dilution

Net Income (Loss)

Basic

Assuming Dilution

Stockholders’ Equity

Cash Dividends

At or for the Year Ended December 31

2008

2007

2006

2005

2004

$ 1.62

$ —

$ 1.62

$19.32

$ 0.30

$ 1.90

$ 1.89

$ 0.02

$ 1.92

$ 1.91

$22.28

$ 0.30

$ 1.25

$ 1.21

$ 0.02

$ 1.27

$ 1.23

$22.53

$ 0.30

$ 1.71

$ 1.61

$ 0.03

$ 1.74

$ 1.64

$24.66

$ 0.30

$ (0.68)

$ (0.18)

$ (0.86)

$24.36

$ 0.30

Weighted Average Common Shares Outstanding

Basic (000s)

Assuming Dilution (000s)

341,022.8

352,969.1

324,654.9

295,776.4

295,224.3

341,560.3

355,776.5

334,361.7

312,512.6

295,224.3

(1) Included are regulatory claim reassessment charges of $65.8 million, $396.4 million, $52.7 million, and $84.5 million in 2007, 2006, 2005, and 2004, respectively,

and reserve strengthening of $110.6 million in 2004 related to the restructuring of the individual disability — closed block.

(2) Included are costs related to early retirement of debt of $0.4 million, $58.8 million, and $25.8 million in 2008, 2007, and 2006, respectively.

(3) Includes the net increase in deferred acquisition costs, compensation expense, and other expenses. Included in these expenses are regulatory claim reassessment
charges (credits) and broker compensation settlement expenses of $(12.8) million, $33.5 million, $22.3 million, and $42.5 million in 2007, 2006, 2005, and 2004,
respectively, and, in 2004, charges related to the impairment of the individual disability — closed block deferred acquisition costs, value of business acquired, and
goodwill balances of $282.2 million, $367.1 million, and $207.1 million, respectively.

(4) Amounts reported for 2006 and 2005 include income tax benefits of $91.9 million primarily as the result of group relief benefits obtained from the use of net operating

losses in a foreign jurisdiction in which our businesses operate and $42.8 million related to the reduction of income tax liabilities, respectively.

(5) Includes after-tax losses of $71.3 million from the Canadian branch sale and write-downs in 2004.

(6) Prior year amounts have been reclassified to conform to current year presentation, as discussed in Note 1 of the “Notes to Consolidated Financial Statements”

contained herein.

69081_2008AR_FIN.indd 19

3/26/09 12:02:02 PM

Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

The discussion and analysis presented in this section should be read in conjunction with our consolidated financial statements and

notes thereto.

Executive Summary

Our primary objectives for 2008 included:

• Consistent execution of our operating plans. We continued our emphasis on disciplined, profitable growth.

• Continued innovation throughout our businesses. Within Unum US, we broadly launched Simply Unum in the small to mid sized

employer marketplace. We capitalized on the introduction of a number of health related products for Colonial Life and continued

to expand our enrollment capabilities and product offerings. In Unum UK, we worked on the development of new product

offerings and the improvement of corporate efficiencies.

• Leveraging of our leadership positions and marketplace reputation. We built on the momentum of 2007 with increased brand

and product awareness.

• Execution of our capital management strategy. We completed our share repurchase program and maintained our financial

measurements at favorable levels relative to our targets.

• Professional development of our employees. We continued our emphasis on training and leadership development and talent

management throughout our organization.

Through focusing on these objectives, we believe that we have instilled greater confidence in our company among our constituents.

In commenting on our results for 2008, we will discuss our operating performance, strategic and capital initiatives, the current economic

environment, and our major areas of focus for 2009.

Operating Performance

During 2008, Unum US reported an increase in segment operating income of 12.5 percent compared to the prior year and excluding

the 2007 revision to the claim reassessment reserve estimate. The group disability benefit ratio was 88.7 percent for the fourth quarter of

2008 and 89.9 percent for full year 2008, consistent with our goal of continual profit margin improvement for this line of business. Unum US

sales increased 11.0 percent in 2008 compared to 2007. Our group core market segment, which we define for Unum US as employee groups

with less than 2,000 lives, had a sales increase of 23.7 percent over the prior year, and the number of new accounts increased 16.4 percent.

Our supplemental and voluntary sales increased 6.8 percent in 2008 compared to last year, with a 14.6 percent increase in voluntary sales

offsetting the expected decrease in sales of individual long-term care. Sales in the group large case market segment declined 1.8 percent

compared to the prior year. During the third quarter of 2007, we introduced Simply Unum, an integrated platform of products and online

services that we believe will transform the benefits marketplace through innovative solutions for our group core market segment and our

voluntary market. The initial limited market rollout occurred in 2007, and we have now expanded the availability of Simply Unum to 45 states

nationwide. We will complete the rollout to the remaining states as state approvals are received. We are also in the process of developing

additional products and services.

Our Unum UK segment continues to produce excellent operating results, with an increase in segment operating income of 6.5 percent

for 2008, as measured in Unum UK’s local currency, relative to 2007. The functional currency of Unum UK is the British pound sterling, and

we translate Unum UK’s pound-denominated financial statements into dollars for our consolidated financial reporting. The recent fluctuations

in the pound to dollar exchange rate have decreased our current year results relative to 2007, particularly results reported for the second

half of 2008. We expect this volatility in translated financial results, which is a financial reporting issue and is not indicative of an operating

problem, to continue in 2009. Overall sales in Unum UK increased 3.6 percent in 2008 compared to the prior year. Sales in 2007 benefited

from the change in age equality legislation more so than in 2008. Excluding sales related to the change in age equality legislation from all

comparable periods, Unum UK achieved underlying sales growth of approximately 16 percent in 2008 relative to 2007. The U.K. market

remains highly competitive. We are developing new products and services to target new customer segments. During 2008 we launched

a dual benefit group disability product designed for the needs of the smaller employer.

69081_2008AR_FIN.indd 20

3/26/09 12:02:02 PM

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Our Colonial Life segment reported an increase in segment operating income of 9.1 percent in 2008 compared to the prior year. Colonial

Life’s sales increased 1.6 percent in 2008 relative to last year, with sales in the commercial market segment for employee groups with less

than 100 lives increasing 6.9 percent. The number of new accounts and the average new case size both increased over the prior year. During

the latter part of 2007, we introduced a new hospital confinement indemnity insurance plan product and a group limited benefit medical plan

product, and in the first quarter of 2008, we introduced the new Colonial Life brand. We are pleased with the marketplace reception for our

new Colonial Life brand and these new product offerings. Colonial Life continues to expand its enrollment capabilities and its product offerings.

In the third quarter of 2008, Colonial Life introduced two new life products and the latest release of its enrollment system, Harmony, which

offers multiple enrollment solutions. In addition, all of Colonial Life’s individual products, including the two new life products, are available

on Harmony.

Our investment strategy continues to provide benefits to our overall business performance. We are focused on both the quality of

our investment portfolio and on investing new money in investments appropriate for our liabilities and with yields that will increase our

portfolio yield. Our net investment income in 2008 was slightly below the level of 2007 due primarily to a decrease in the level of bond call

premiums. Included in 2008 results are net realized investment losses from sales and write-downs of investments related primarily to fixed

maturity securities in the financial institutions, automotive, and media sectors that we either sold or considered other than temporarily

impaired during the third and fourth quarters of 2008. We believe our investment portfolio is well positioned for the current environment,

with historically low levels of below-investment-grade securities, no exposure to subprime mortgages, “Alt-A” loans, or collateralized debt

obligations in our asset-backed or mortgage-backed securities portfolios, and minimal exposure to collateralized debt obligations within our

public bond portfolio. Further discussion is included in “Investments” contained herein.

Strategic and Capital Initiatives

The first priority of our capital management strategy is to maintain sufficient financial flexibility to support our operations over

various economic cycles and to respond to opportunities in the marketplace while positioning our Company for improvements in its credit

ratings. We have several financial targets which guide our capital management decisions including:

• Maintain a risk based capital ratio of 300 percent or greater for our traditional U.S. insurance subsidiaries. This is to be measured

on a weighted average basis using the NAIC Company Action Level formula.

• Maintain leverage at approximately 25 percent. Leverage will be measured as total debt to total capital, which we define as total

long-term and short-term debt plus stockholders’ equity, excluding the net unrealized gain or loss on securities and the net gain

or loss on cash flow hedges. This target level excludes the non-recourse debt and associated capital of Tailwind Holdings and

Northwind Holdings.

• Maintain cash and liquid investments at our holding companies sufficient to cover one year of fixed charges (measured as interest

expense plus common stock dividends) plus a capital fund which will vary with business and economic conditions.

• Maintain a common stock dividend yield that is near the median of our peer companies.

At the end of 2008, all of our financial measurements for capital management continue to compare favorably to our target levels.

We have completed our $700.0 million authorized share repurchase program, and we have maintained our leverage at 21.5 percent,

compared to 21.4 percent at the end of 2007.

See “Liquidity and Capital Resources” contained herein for further detail.

Economic Environment

Analysis and stress testing are important aspects of understanding our financial risk exposure and developing proactive risk

management efforts. As part of our recessionary analysis, we have identified the following potential challenges to our 2009 business

outlook, as well as what we perceive to be opportunities and mitigating factors, resulting from the current economy.

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Potential Challenges

• Lower premium income from fewer employees in the work-force of our markets; employer- and employee-paid cost pressures may

also limit sales and reduce persistency.

• Lower net investment income from fewer long-term assets to match our liability portfolio; lower bond call prepayment income.

• Lower investment income and/or higher realized investment losses due to an increase in defaults.

• Higher unrealized investment losses.

• Higher disability claim costs.

• Higher operating expense ratios due to declining premiums.

Opportunities and Mitigating Factors

• Lower premium income may be mitigated by mix of business and by our growing position in the voluntary market.

• Lower premium income may be mitigated by the flexibility of our product design and pricing.

• We may achieve higher investment income from wider corporate spreads which enhance investment income associated with new

purchases of fixed maturity securities.

• We have low levels of exposure to high risk investments.

• We believe our claim reserve discount rates are adequate relative to investment portfolio yield rates.

• We believe our risk management is strong; we have a diversified business mix, with a core market focus which generally has lower

and less volatile claim incidence.

• Our historical pattern of benefits paid to revenues is consistent, even during cycles of economic downturns.

• We manage our expenses aggressively and have cost management initiatives in place.

• We believe our risk-based capital and holding company liquidity position us well for an economic downturn.

Our business outlook recognizes both the challenges of the current economic environment as well as the mitigating impact of risk-

reducing actions we have taken in recent years, including product diversification across sectors and locations, our mix of business, our disciplined

underwriting, pricing, claims, and expense management, a reduced credit risk profile in our investment portfolio, our capital management

strategy, and better risk management practices. Our outlook is responsive to our risk management framework and is consistent with our

risk appetite. Although occurrence of one or more of the risk factors discussed in Item 1A of our Annual Report on Form 10-K for the fiscal

year ended December 31, 2008 may cause our results to differ from our outlook, we believe that our business outlook is built on sound

operating plans that have been tested against many of the challenges presented by the current economic environment.

Focus for 2009

During 2009, we intend to continue our focus on a number of key areas.

• Consistent execution of our operating plans. We will continue our emphasis on disciplined, profitable growth.

• Maintain a strong investment portfolio. We will maintain disciplined credit analysis in our selection of investment assets and

continue to be conservative within our investment risk tolerances.

• Build and effectively use capital. We intend to continue to build capital and manage it effectively within our stated capital

management strategy objectives.

• Professional development of our employees. We will continue our focus on employee training and development as well as

talent management.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

2008 Significant Transactions and Events

Legal and Regulatory Issues

On January 12, 2009, in a two-to-one decision, the Sixth Circuit Court of Appeals reversed the District Court’s earlier ruling certifying

a class in the case styled, In re UnumProvident Corp. ERISA Benefits Denial Actions. On January 26, 2009, the plaintiffs filed a petition for

rehearing of this decision by the full court. The District Court has yet to rule on our pending motions for judgment on the pleadings or for

summary judgment.

During 2008, we reached a settlement in the Shareholder Derivative action that was originally filed in 2002. Under the terms of the

settlement, which is subject to approval of the court, we have agreed to implement or continue certain corporate governance measures

and pay plaintiffs’ attorneys’ fees in an amount to be determined by the court.

Also during 2008, we reached a settlement with the U.S. Attorney in San Diego regarding broker compensation disclosure practices

dating back several years. While this settlement was only recently finalized, it covers issues that were resolved several years ago with other

regulators. We have worked cooperatively with the U.S. Attorney’s office since its inquiry into the industry’s compensation practices

began. As part of the settlement, we agreed to a payment of $5.6 million and included this expense in our 2008 results. Compliance with

the terms of the settlement agreement will not require any further changes in our business practices, as we previously made changes to

our broker compensation program.

During 2007, we completed the claim reassessment process required by the 2004 and 2005 regulatory settlement agreements. The

lead regulators conducted a final examination and presented their findings to Unum Group’s board of directors and management on April 14,

2008. The report of the multistate market conduct examination for the Maine Bureau of Insurance, Massachusetts Division of Insurance,

New York State Insurance Department, Tennessee Department of Commerce and Insurance, and other participating jurisdictions as well as

the report of the California Department of Insurance market conduct examination both provided that we satisfactorily complied with each

of the agreements’ mandates and that no fines will be assessed.

We continue to work closely with our regulators and also continue to work toward resolution of other outstanding legal and regulatory

issues. See Note 14 of the “Notes to Consolidated Financial Statements” contained herein for information on our legal proceedings.

Financing

During 2007, Unum Group’s board of directors authorized the repurchase of up to $700.0 million of Unum Group common stock. During

2008, we completed our share repurchase program and purchased 29.9 million shares of Unum Group common stock for $700.0 million.

During the second quarter of 2008, we retired the remaining $175.0 million of our 5.997% senior notes. During 2008, we made principal

payments of $59.3 million and $10.0 million on our senior secured non-recourse variable rate notes issued by Northwind Holdings and

Tailwind Holdings, respectively. We also purchased and retired $36.6 million of our 6.85% senior debentures due 2015 and $17.8 million of

our outstanding 5.859% senior notes due in May 2009.

In December 2008, we obtained a new credit facility. The current facility establishes a $250.0 million unsecured revolving line of

credit and replaces an existing facility. We intend to use any drawn borrowings from the facility for general corporate purposes. Any actions

that we may take will be consistent with our stated capital management strategy.

See “Liquidity and Capital Resources” contained herein and Note 8 of the “Notes to Consolidated Financial Statements” for

additional information.

Other

During the first quarter of 2008, we established a new non-insurance company, Unum Ireland Limited, which is an indirect wholly-

owned subsidiary of Unum Group. The purpose of Unum Ireland Limited is to expand our information technology resource options to

ensure that our resource capacity keeps pace with the growing demand for information technology support. This subsidiary, which is located

in Carlow, Ireland, had approximately 40 full-time employees at the end of 2008.

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Accounting Pronouncements

Effective January 1, 2008, we adopted the provisions of Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair Value

Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value

measurements. The adoption of SFAS 157 did not have a material effect on our financial position or results of operations.

Effective December 31, 2008, we adopted the provisions of FASB Staff Position No. EITF 99-20-1, (FSP EITF 99-20-1), Amendments to the

Impairment Guidance of EITF Issue No. 99-20. This FSP amends the impairment guidance in Emerging Issues Task Force (EITF) Issue No. 99-20,

Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a

Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has

occurred. The FSP also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure

requirements in Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, and

other related guidance. The adoption of FSP EITF 99-20-1 did not have a material effect on our financial position or results of operations.

Statement of Financial Accounting Standards No. 161 (SFAS 161), Disclosures about Derivative Instruments and Hedging Activities, an

amendment of FASB Statement No. 133, was issued in March 2008. SFAS 161 is intended to improve financial reporting about derivative

instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s

financial position, financial performance, and cash flows. We will adopt the provisions of SFAS 161 effective January 1, 2009. The adoption

of SFAS 161 will amend our disclosures but will have no effect on our financial position or results of operations.

FASB Staff Position No. FAS 132(R)-1, (FSP FAS 132(R)-1), Employers’ Disclosures about Postretirement Benefit Plan Assets, was issued

December 30, 2008. This FSP amends Statement of Financial Accounting Standards No. 132 (revised 2003), Employers’ Disclosures about

Pensions and Other Postretirement Benefits, to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension

or other postretirement plan. The disclosures about plan assets required by this FSP are required for fiscal years ending after December 15,

2009. The adoption of FSP FAS 132(R)-1 will amend our disclosures but will have no effect on our financial position or results of operations.

2007 Significant Transactions and Events

Legal and Regulatory Issues

Revised Claim Reassessment Reserve Estimate

As previously noted, during 2007 we completed the claim reassessment process required by the 2004 and 2005 regulatory settlement

agreements. Prior to completion of the claim reassessment process, in the second quarter of 2007 we increased our provision for the

estimated cost of the claim reassessment process $53.0 million before tax and $34.5 million after tax based on changes in our emerging

experience for the number of decisions being overturned and the average cost per reassessed claim. The revised second quarter of 2007

estimate was based on the cost of approximately 99 percent of the potential inventory of claim reassessment information forms returned to

us, with our claim reassessment on approximately 88 percent of the forms completed at that time. At the time of our second quarter of 2007

revision, we had not yet finalized our claim reassessment on the remaining forms but had performed a financial review and included that

information in our analysis of emerging experience. Additional information regarding the second quarter revision to our estimate is as follows:

1. We increased our previous estimate for benefit costs for claims reopened for our Unum US group long-term disability product line

$76.5 million. The revision related to the increase during the second quarter of 2007 in the overturn rate and the average cost, as

well as a slightly higher number of claims.

2. We decreased our previous estimate for benefit costs for claims reopened for our Individual Disability — Closed Block segment

$10.7 million. Although the experience relative to our assumptions for the overturn rate was slightly higher, experience indicated

that the total number of claims for this segment would be less than our previous assumptions.

3. We decreased our previous estimate for the additional incremental direct claim reassessment operating expenses $12.8 million due

to our projections for an earlier completion of the reassessment process. We released $10.3 million for Unum US group long-term

disability and $2.5 million for our Individual Disability — Closed Block segment.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

4. These second quarter of 2007 adjustments to our claim reassessment costs decreased 2007 before-tax operating earnings for our

Unum US group disability line of business $66.2 million and increased 2007 before-tax operating earnings for our Individual Disability —

Closed Block segment $13.2 million.

Financing

The scheduled remarketing of the senior note element of our 2004 adjustable conversion-rate equity units (units) occurred in February

2007, as stipulated by the terms of the original offering, and we reset the interest rate on $300.0 million of senior notes due May 15, 2009

to 5.859%. We purchased $150.0 million of the senior notes in the remarketing which were subsequently retired. In May 2007, we settled

the purchase contract element of the 2004 units by issuing 17.7 million shares of common stock. We received proceeds of approximately

$300.0 million from the transaction.

Throughout 2007, we repaid an additional $619.5 million of our outstanding debt, for total long-term debt repayments of $769.5 million.

The cost related to the early retirement of debt during 2007 decreased our 2007 operating results approximately $58.8 million before tax,

or $38.3 million after tax.

On October 31, 2007, Northwind Holdings issued $800.0 million of floating rate, insured, senior, secured notes due 2037 in a private offering.

The notes bear interest at a floating rate equal to the three month London Interbank Offered Rate (LIBOR) plus 0.78%. Recourse for the

payment of principal, interest, and other amounts due on the notes will be dependent principally on the receipt of dividends from Northwind

Reinsurance Company (Northwind Re), the sole subsidiary of Northwind Holdings. See “Liquidity and Capital Resources” contained herein

and Notes 8 and 15 of the “Notes to Consolidated Financial Statements” for additional information on Northwind Holdings and Northwind Re.

In December 2007, we established a $400.0 million unsecured revolving credit facility.

Dispositions

During the first quarter of 2007, we completed the sale of our wholly-owned subsidiary, GENEX Services, Inc. (GENEX), a leading workers’

compensation and medical cost containment services provider. Our growth strategy is focused on the development of our primary markets,

and GENEX’s specialty role in case management and medical cost containment related to the workers’ compensation market was no longer

consistent with our overall strategic direction. We recognized an after-tax gain on the transaction of approximately $6.2 million. See Note 2

of the “Notes to Consolidated Financial Statements” for additional information.

Accounting Pronouncements

Effective January 1, 2007, we adopted the provisions of Statement of Position 05-1 (SOP 05-1), Accounting by Insurance Enterprises for

Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts. SOP 05-1 provides guidance on accounting

by insurance enterprises for deferred acquisition costs (DAC) on internal replacements of insurance and investment contracts other than

those specifically described in Statement of Financial Accounting Standards No. 97, Accounting and Reporting by Insurance Enterprises for

Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments. The cumulative effect of applying the

provisions of SOP 05-1 decreased our 2007 opening balance of retained earnings $445.2 million.

Effective January 1, 2007, we adopted the provisions of Financial Accounting Standards Board Interpretation No. 48 (FIN 48), Accounting

for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (SFAS 109). FIN 48 clarifies the accounting for uncertainty in

income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. Unlike SFAS 109, FIN 48 prescribes a recognition

threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken

in a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,

disclosure, and transition. The cumulative effect of applying the provisions of FIN 48 increased our 2007 opening balance of retained earnings

$22.7 million.

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Effective January 1, 2007, we adopted the provisions of Statement of Financial Accounting Standards No. 155 (SFAS 155), Accounting

for Certain Hybrid Financial Instruments, an amendment of Statement of Financial Accounting Standards Nos. 133 (SFAS 133) and 140

(SFAS 140). SFAS 155: (a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that

otherwise would require bifurcation; (b) clarifies which interest-only strips and principal-only strips are not subject to the requirements of

SFAS 133; (c) establishes a requirement to evaluate beneficial interests in securitized financial assets to identify interests that are freestanding

derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (d) clarifies that concentrations

of credit risk in the form of subordination are not embedded derivatives; and, (e) eliminates restrictions on a qualifying special-purpose entity’s

ability to hold passive derivative financial instruments that pertain to beneficial interests that are or contain a derivative financial instrument.

The adoption of SFAS 155 did not have a material effect on our financial position or results of operations.

2006 Significant Transactions and Events

Legal and Regulatory Issues

Revised Claim Reassessment Reserve Estimate

In the first quarter of 2006, we completed an analysis of our assumptions related to the reserves we established for our claim

reassessment process. Our analysis was based on preliminary data as of the end of the first quarter of 2006, when actual results to date

were considered credible enough to enable us to update our initial expectations of costs related to the reassessment process. We concluded

that a change in our initial assumptions, primarily related to the number of claimants for whom payments will continue because the claimant

remains eligible for disability payments, was warranted. We based our conclusion and our revised estimate on the information that existed

at that time, which was the actual cost related to approximately 20 percent of the projected ultimate total number of claims expected to be

reassessed. The characteristics, profile, and cost of those initial 20 percent of claims were more statistically credible than the information on

which we based the initial charges in 2004 and 2005. Based on our analysis, in the first quarter of 2006 we recorded a charge of $86.0 million

before tax, or $55.9 million after tax, to reflect our then current estimate of future obligations for benefit costs for claims reopened in the

reassessment. The first quarter charge decreased 2006 before-tax operating results for our Unum US group disability line of business

$72.8 million and our Individual Disability — Closed Block segment $13.2 million.

In the third quarter of 2006, we increased our provision for the cost of the reassessment process $325.4 million before tax and

$211.5 million after tax based on changes in our emerging experience for the number of decisions being overturned by the reassessment

process and the average cost per reassessed claim. The revised third quarter estimate was based on the cost of approximately 55 percent of

the projected ultimate total number of claims expected to be reassessed. The third quarter charge was comprised of $310.4 million to reflect

our revised estimate of future obligations for benefit costs for claims reopened in the reassessment and $15.0 million for additional incremental

direct claim reassessment operating expenses because of the additional time then estimated to complete the process. Our best estimate

of $310.4 million for the reopened claims assumed that the nature and characteristics of the approximately 45 percent remaining claims

estimated to be reassessed at that time would be similar to the average profile of the 55 percent already reviewed at that time. The third

quarter charge decreased before-tax operating results for our Unum US group disability line of business $291.4 million and our Individual

Disability — Closed Block segment $34.0 million.

Regulatory Investigations

Beginning in 2004, several of our insurance subsidiaries’ insurance regulators requested information relating to the subsidiaries’

policies and practices on one or more aspects of broker compensation, quoting insurance business, and related matters. Additionally,

we responded to investigations about certain of these same matters by state attorneys general and the U.S. Department of Labor (DOL).

Following highly publicized litigation involving the alleged practices of a major insurance broker, the NAIC has undertaken to provide a

uniform Compensation Disclosure Amendment to the Producer Licensing Model Act that can be adopted by states in an effort to provide

uniform guidance to insurers, brokers, and customers relating to disclosure of broker compensation. We expect there to be continued

uncertainty surrounding this matter until clearer regulatory guidelines are established.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

In June 2004, we received a subpoena from the NYAG requesting documents and information relating to compensation arrangements

between insurance brokers or intermediaries and us and our subsidiaries. In November 2006, we entered into a settlement agreement on

broker compensation with the NYAG in the form of an assurance of discontinuance that provided for a national restitution fund of $15.5 million

and a fine of $1.9 million.

We support the full disclosure of compensation paid to both brokers and agents and have implemented policies to facilitate customers

obtaining information regarding broker compensation from their brokers. Additionally, we provide appropriate notices to customers stating

our policy surrounding disclosure and provide information on our Company website about our broker compensation programs. Under these

policies, any customer who wants specific broker compensation related information can obtain this information by contacting our Broker

Compensation Services at a toll-free number. Other changes implemented during 2006 included requiring customer approval of compensation

paid by us to the broker when the customer is also paying a fee to the broker and strengthening certain policies and procedures associated

with new business and quoting activities.

Financing

The scheduled remarketing of the senior note element of our 2003 units occurred in February 2006, as stipulated by the terms of the

original offering, and we reset the interest rate on $575.0 million of senior notes due May 15, 2008 to 5.997%. We purchased $400.0 million

of the senior notes in the remarketing which were subsequently retired. In May 2006, we settled the purchase contract element of the units

by issuing 43.3 million shares of common stock. We received proceeds of approximately $575.0 million from the transaction.

Throughout 2006, we repaid an additional $332.0 million of our outstanding debt, for total long-term debt repayments of $732.0 million.

The cost related to the early retirement of debt decreased our 2006 annual income approximately $25.8 million before tax, or $16.9 million

after tax.

In November 2006, Tailwind Holdings, a Delaware limited liability company and a wholly-owned subsidiary of Unum Group, issued

$130.0 million of floating rate, insured, senior, secured notes in a private offering. The payment of principal, interest, and other amounts due

on the notes will be dependent principally on the receipt of dividends from Tailwind Reinsurance Company (Tailwind Re), the sole subsidiary

of Tailwind Holdings. See “Liquidity and Capital Resources” contained herein and Notes 8 and 15 of the “Notes to Consolidated Financial

Statements” for additional information on Tailwind Holdings and Tailwind Re.

Income Tax

During 2006, we recognized an income tax benefit of approximately $91.9 million as the result of the reversal of tax liabilities related

primarily to group relief benefits recognized from the use of net operating losses in a foreign jurisdiction in which our businesses operate.

Accounting Pronouncements

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS 123(R)), Share-Based

Payment, which is a revision to Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation.

SFAS 123(R) focuses primarily on accounting for transactions in which an entity obtains employee service in exchange for share-based payments.

Under SFAS 123(R), share-based awards that do not require future service (i.e., vesting awards) are expensed immediately. Share-based employee

awards that require future service are amortized over the relevant service period. We adopted SFAS 123(R) using the modified prospective

transition method. Under this method, the provisions are generally applied only to share-based awards granted after adoption. The adoption

of SFAS 123(R) did not have a material effect on our financial position or results of operations. Additional information concerning the adoption

of SFAS 123(R) can be found in Notes 1 and 11 of the “Notes to Consolidated Financial Statements.”

Effective January 1, 2006, we adopted the provisions of FASB Staff Position No. FAS 115-1 (FSP 115-1), The Meaning of Other-Than-

Temporary Impairment and Its Application to Certain Investments, which addresses the determination of when an investment is considered

impaired, whether the impairment is other than temporary, and the measurement of an impairment loss. FSP 115-1 also includes accounting

considerations subsequent to the recognition of other-than-temporary impairment and requires certain disclosures about unrealized losses.

The adoption of FSP 115-1 did not have a material effect on our financial position or results of operations.

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Effective December 31, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 158 (SFAS 158), Employers’

Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).

SFAS 158 requires an employer to recognize the overfunded or underfunded status of defined benefit pension and other postretirement

plans as an asset or liability in its balance sheet and to recognize changes in that funded status through comprehensive income. Also,

under SFAS 158, defined benefit pension and other postretirement plan assets and obligations are to be measured as of the date of the

employer’s fiscal year-end. The adoption of SFAS 158, which resulted in an $84.1 million decrease in accumulated other comprehensive

income in stockholders’ equity, had no effect on our results of operations.

Critical Accounting Estimates

We prepare our financial statements in accordance with GAAP. The preparation of financial statements in conformity with GAAP

requires us to make estimates and assumptions that affect amounts reported in our financial statements and accompanying notes. The

accounting estimates we deem to be most critical to our results of operations and balance sheets are those related to reserves for policy

and contract benefits, deferred acquisition costs, valuation of investments, pension and postretirement benefit plans, and income taxes.

Estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported

and disclosed in our financial statements.

For additional information, refer to our significant accounting policies in Note 1 of the “Notes to Consolidated Financial Statements.”

Reserves for Policy and Contract Benefits

Our largest liabilities are reserves for claims that we estimate we will eventually pay to our policyholders. The two primary categories of

reserves are policy reserves for claims not yet incurred and claim reserves for claims that have been incurred or are estimated to have been

incurred but not yet reported to us. These reserves equaled $37.2 billion and $36.9 billion at December 31, 2008 and 2007, respectively, or

approximately 85 percent of our total liabilities. Reserves ceded to reinsurers were $6.7 billion and $6.6 billion at December 31, 2008 and

2007, respectively, and are reported as a reinsurance recoverable in our consolidated balance sheets.

Policy Reserves

Policy reserves are established in the same period we issue a policy and equal the difference between projected future policy benefits

and future premiums, allowing a margin for expenses and profit. These reserves relate primarily to our traditional non interest-sensitive

products, including our individual disability, individual and group long-term care, 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, the

Individual Disability — Closed Block segment products. The reserves are calculated based on assumptions that were appropriate at the date

the policy was issued and are not subsequently modified unless the policy reserves become inadequate (i.e., loss recognition occurs).

• Persistency assumptions are based on our actual historical experience adjusted for future expectations.

• Claim incidence and claim resolution rate assumptions related to mortality and morbidity are based on actual experience or industry

standards adjusted as appropriate to reflect our actual experience and future expectations.

• Discount rate assumptions are based on our current and expected net investment returns.

In establishing policy reserves, we use assumptions that reflect our best estimate while considering the potential for adverse

variances in actual future experience, which results in a total policy reserve balance that has an embedded reserve for adverse deviation.

We do not, however, establish an explicit and separate reserve as a provision for adverse deviation from our assumptions.

We perform loss recognition tests on our policy reserves annually, or more frequently if appropriate, using best estimate assumptions

as of the date of the test, without a provision for adverse deviation. We group the policy reserves for each major product line within a

segment when we perform the loss recognition tests. If the policy reserves determined using these best estimate assumptions are higher

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

than our existing policy reserves net of any deferred acquisition cost balance, the existing policy reserves are increased or deferred

acquisition costs are reduced to immediately recognize the deficiency. Thereafter, the policy reserves for the product line are calculated

using the same method we used for the loss recognition testing, referred to as the gross premium valuation method, wherein we use our

best estimate as of the gross premium valuation (loss recognition) date rather than the initial policy issue date to determine the expected

future claims, commissions, and expenses we will pay and the expected future gross premiums we will receive.

We maintain policy reserves for a policy for as long as the policy remains in force, even after a separate claim reserve is established.

Policy reserves for Unum US, Unum UK, and Colonial Life products, which at December 31, 2008 represented approximately 34.6 percent,

0.2 percent, and 9.2 percent, respectively, of our total gross policy reserves, are determined using the net level premium method as prescribed

by GAAP. In applying this method, we use, as applicable by product type, morbidity and mortality incidence rate assumptions, claim resolution

rate assumptions, and policy persistency assumptions, among others, to determine our expected future claim payments and expected future

premium income. We then apply an interest, or discount, rate to determine the present value of the expected future claims, commissions,

and expenses we will pay and the expected future premiums we will receive, with a provision for profit allowed.

Policy reserves for our Individual Disability — Closed Block segment, which at December 31, 2008, represented approximately 12.0 percent

of our total gross policy reserves, are determined using the gross premium valuation method based on assumptions established as of

January 1, 2004, the date of loss recognition. Key assumptions are policy persistency, claim incidence, claim resolution rates, commission

rates, and maintenance expense rates. We then apply an interest, or discount, rate to determine the present value of the expected future

claims, commissions, and expenses we will pay as well as the expected future premiums we will receive. There is no provision for profit. The

interest rate is based on our expected net investment returns on the investment portfolio supporting the reserves for this segment. Under

the gross premium valuation method, we do not include an embedded provision for the risk of adverse deviation from these assumptions.

Gross premium valuation assumptions do not change after the date of loss recognition unless reserves are again determined to be deficient.

We perform loss recognition tests on the policy reserves for this block of business quarterly.

The Corporate and Other segment includes certain products no longer actively marketed, the majority of which have been reinsured.

Policy reserves for this segment represent $5.6 billion on a gross basis, or approximately 44.0 percent, of our total policy reserves. We have

ceded $4.2 billion of the related policy reserves to reinsurers. The ceded reserve balance is reported in our consolidated balance sheets as a

reinsurance recoverable. We continue 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 supporting the liabilities.

Claim Reserves

Claim reserves are established when a claim is incurred or is estimated to have been incurred but not yet reported (IBNR) to us and, as

prescribed by GAAP, equals our long-term best estimate of the present value of the liability for future claim payments and claim adjustment

expenses. A claim reserve is based on actual known facts regarding the claim, such as the benefits available under the applicable policy,

the covered benefit period, and the age and occupation of the claimant, as well as assumptions derived from our actual historical experience

and expected future changes in experience for factors such as the claim duration and discount rate. Reserves for IBNR claims, similar to

incurred claim reserves, include our assumptions for claim duration and discount rates but because we do not yet know the facts regarding

the specific claims, are also based on historical incidence rate assumptions, including claim reporting patterns, the average cost of claims,

and the expected volumes of incurred claims. Our incurred claim reserves and IBNR claim reserves do not include any provision for the risk

of adverse deviation from our assumptions.

Claim reserves, unlike policy reserves, are subject to revision as current claim experience and projections of future factors affecting

claim experience change. Each quarter we review our emerging experience to ensure that our claim reserves are appropriate. If we believe,

based on our actual experience and our view of future events, that our long-term assumptions need to be modified, we adjust our

reserves accordingly with a charge or credit to our current period income.

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Multiple estimation methods exist to establish claim reserve liabilities, with each method having its own advantages and disadvantages.

Available reserving methods utilized to calculate claim reserves include the tabular reserve method, the paid development method, the

incurred loss development method, the count and severity method, and the expected claim cost method. No singular method is better than

the others in all situations and for all product lines. The estimation methods we have chosen are those that we believe produce the most

reliable reserves at that time.

Claim reserves supporting our Unum US group and individual disability and group and individual long-term care lines of business and

our Individual Disability — Closed Block segment represent approximately 39.6 percent and 43.4 percent, respectively, of our total claim

reserves at December 31, 2008. We use a tabular reserve methodology for group and individual long-term disability and group and

individual long-term care claims that have been reported. Under the tabular reserve methodology, reserves for reported claims are based

on certain characteristics of the actual reported claimants, such as age, length of time disabled, and medical diagnosis. We believe the

tabular reserve method is the most accurate to calculate long-term liabilities and allows us to use the most available known facts about

each claim. IBNR claim reserves for our long-term products are calculated using the count and severity method using historical patterns

of the claims to be reported and the associated claim costs. For group short-term disability products, an estimate of the value of future

payments to be made on claims already submitted, as well as IBNR claims, is determined in aggregate rather than on the individual claimant

basis that we use for our long-term products, using historical patterns of claim incidence as well as historical patterns of aggregate claim

resolution rates. The average length of time between the event triggering a claim under a policy and the final resolution of those claims

is much shorter for these products than for our long-term liabilities and results in less estimation variability.

Claim reserves supporting the Unum US group life and accidental death and dismemberment products represent approximately

3.8 percent of our total claim reserves at December 31, 2008. Claim reserves for these products are related primarily to death claims

reported but not yet paid, IBNR death claims, and a liability for waiver of premium benefits. The death claim reserve is based on the actual

face amount to be paid, the IBNR reserve is calculated using the count and severity method, and the waiver of premium benefits reserve

is calculated using the tabular reserve methodology.

Claim reserves supporting our Unum UK segment represent approximately 8.5 percent of our total claim reserves at December 31, 2008,

and are calculated using generally the same methodology that we use for Unum US disability and group life reserves. The assumptions

used in calculating claim reserves for this line of business are based on standard United Kingdom industry experience, adjusted for Unum

UK’s own experience.

The majority of the Colonial Life segment lines of business have short-term benefits, which have less estimation variability than our

long-term products because of the shorter claim payout period. Our claim reserves for Colonial Life’s lines of business, which approximate

1.4 percent of our total claim reserves at December 31, 2008, are predominantly determined using the incurred loss development method

based on our own experience. The incurred loss development method uses the historical patterns of payments by loss date to predict future

claim payments for each loss date. Where the incurred loss development method may not be appropriate, we estimate the incurred claims

using an expected claim cost per policy or other measure of exposure. The key assumptions for claim reserves for the Colonial Life lines of

business are: (1) the timing, rate, and amount of estimated future claim payments; and (2) the estimated expenses associated with the

payment of claims.

The following table displays policy reserves, incurred claim reserves, and IBNR claim reserves by major product line, with the

summation of the policy reserves and claim reserves shown both gross and net of the associated reinsurance recoverable. Incurred claim

reserves represent reserves determined for each incurred claim and also include estimated amounts for litigation expenses and other

expenses associated with the payment of the claims as well as provisions for claims which we estimate will be reopened for our long-term

care products. IBNR claim reserves include provisions for incurred but not reported claims and a provision for reopened claims for our

disability products. The IBNR and reopen claim reserves for our disability products are developed and maintained in aggregate based on

historical monitoring that has only been on a combined basis.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

December 31, 2008

Gross

Claim Reserves

Incurred

IBNR

Total

Total
Reinsurance
Ceded

Total
Net

Policy
Reserves

$ —

—% $ 7,799.1

$ 583.1

34.3% $ 8,382.2 $ 81.1 $ 8,301.1

(in millions of dollars)

Group Disability

Group Life and Accidental

Death & Dismemberment

72.9

0.6

750.1

170.3

3.8

993.3

0.9

992.4

Individual Disability —

Recently Issued

Long-term Care

Voluntary Benefits

Unum US Segment

Unum UK Segment

Colonial Life Segment

Individual Disability —

493.6

3.9

2,915.3

22.9

925.5

7.2

4,407.3

34.6

22.6

1,172.2

0.2

9.2

882.5

295.9

21.1

9,748.7

1,887.6

237.0

90.3

35.2

37.0

915.9

181.5

97.3

4.0

1.3

0.2

43.6

8.5

1.4

1,466.4

3,246.4

983.6

15,071.9

2,091.7

1,506.5

84.1

48.9

19.1

234.1

102.7

31.1

1,382.3

3,197.5

964.5

14,837.8

1,989.0

1,475.4

Closed Block Segment

Corporate and Other Segment

1,527.6

5,605.4

12.0

44.0

10,239.9

490.7

350.3

270.1

43.4

3.1

12,117.8

1,456.6

10,661.2

6,366.2

4,853.8

1,512.4

Subtotal, Excl. Unrealized Adj.

$12,735.1 100.0% $22,603.9

$1,815.1 100.0%

37,154.1

6,678.3

30,475.8

Adjustment to Reserves

for Unrealized Investment Losses

Consolidated

(in millions of dollars)

Group Disability

Group Life and Accidental

Death & Dismemberment

Individual Disability —
Recently Issued (1)

Long-term Care

Voluntary Benefits

Unum US Segment

Unum UK Segment

Colonial Life Segment

Individual Disability —

(803.1)

(31.9)

(771.2)

$36,351.0 $6,646.4 $29,704.6

December 31, 2007

Gross

Claim Reserves

Incurred

IBNR

Total

Total
Reinsurance
Ceded

Total
Net

Policy
Reserves

$ —

—% $ 7,770.4

$ 596.9

33.8%

$ 8,367.3 $ 92.9 $ 8,274.4

73.9

0.6

772.4

178.5

3.8

1,024.8

3.4

1,021.4

458.4

3.8

2,478.2

20.4

853.1

7.0

3,863.6

31.8

30.7

1,091.7

0.2

9.0

808.3

244.3

19.1

9,614.5

2,420.4

239.9

86.6

32.6

35.0

929.6

268.8

104.1

362.0

288.9

3.6

1.1

0.2

42.5

10.8

1.4

42.0

3.3

1,353.3

2,755.1

907.2

14,407.7

2,719.9

1,435.7

79.4

52.6

14.6

242.9

149.3

33.4

1,273.9

2,702.5

892.6

14,164.8

2,570.6

1,402.3

12,062.7

1,374.4

10,688.3

6,322.4

4,770.8

1,551.6

Closed Block Segment (1)

Corporate and Other Segment

1,657.2

5,515.2

13.6

45.4

10,043.5

518.3

Subtotal, Excl. Unrealized Adj.

$12,158.4 100.0% $22,836.6

$1,953.4

100.0%

36,948.4

6,570.8

30,377.6

Adjustment to Reserves

for Unrealized Investment Gains

Consolidated

(1) Amounts have been reclassified to conform to current year presentation.

859.3

—

859.3

$37,807.7 $6,570.8 $31,236.9

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Key Assumptions

The calculation of policy and claim reserves involves numerous assumptions, but the primary assumptions used to calculate reserves are

(1) the discount rate, (2) the claim resolution rate, and (3) the claim incidence rate for policy reserves and IBNR claim reserves. Of these

assumptions, our discount rate and claim resolution rate assumptions have historically had the most significant effects on our level of

reserves because many of our product lines provide benefit payments over an extended period of time.

1. The discount rate, which is used in calculating both policy reserves and incurred and IBNR claim reserves, is the interest rate that we

use to discount future claim payments to determine the present value. A higher discount rate produces a lower reserve. If the discount

rate is higher than our future investment returns, our invested assets will not earn enough investment income to support our future

claim payments. In this case, the reserves may eventually be insufficient. We set our assumptions based on our current and

expected future investment yield of the assets supporting the reserves, considering current and expected future market conditions.

If the investment yield on new investments that are purchased is below or above the investment yield of the existing investment

portfolio, it is likely that the discount rate assumption on claims will be established to reflect the effect of the new investment yield.

2. The claim resolution rate, used for both policy reserves and incurred and IBNR claim reserves, is the probability that a disability

claim will close due to recovery or death of the insured. It is important because it is used to estimate how long benefits will be paid

for a claim. Estimated resolution rates that are set too high will result in reserves that are lower than they need to be to pay the

claim benefits over time. Claim resolution assumptions involve many factors, including the cause of disability, the policyholder’s

age, the type of contractual benefits provided, and the time since initially becoming disabled. We use our own claim experience

to develop our claim resolution assumptions. These assumptions are established for the probability of death and the probability of

recovery from disability. Our studies review actual claim resolution experience over a number of years, with more weight placed

on our experience in the more recent years. We also consider any expected future changes in claim resolution experience.

3. The incidence rate, used for policy reserves and IBNR claim reserves, is the rate at which new claims are submitted to us. The

incidence rate is affected by many factors including the age of the insured, the insured’s occupation or industry, the benefit plan

design, and certain external factors such as consumer confidence and levels of unemployment. We establish our incidence

assumption using a historical review of actual incidence results along with an outlook of future incidence expectations.

Establishing reserve assumptions is complex and involves many factors. Reserves, particularly for policies offering insurance coverage

for long-term disabilities, are dependent on numerous assumptions other than just those presented in the preceding discussion. The impact

of internal and external events, such as changes in claims management procedures, economic trends such as the rate of unemployment and

the level of consumer confidence, the emergence of new diseases, new trends and developments in medical treatments, and legal trends

and legislative changes, among other factors, will influence claim incidence and resolution rates. Reserve assumptions differ by product line

and by policy type within a product line. Additionally, in any period and over time, our actual experience may have a positive or negative

variance from our long-term assumptions, either singularly or collectively, and these variances may offset each other. We test the overall

adequacy of our reserves using all assumptions and with a long-term view of our expected experience over the life of a block of business

rather than test just one or a few assumptions independently that may be aberrant over a short period of time. Therefore it is not possible to

bifurcate the assumptions to evaluate the sensitivity of a change in each assumption, but rather in the aggregate by product line. We have

presented in the following section an overview of our trend analysis for key assumptions and the results of variability in our assumptions,

in aggregate, for the reserves which we believe are reasonably possible to have a material impact on our future financial results if actual

claims yield a materially different amount than what we currently expect and have reserved for, either favorable or unfavorable.

Trends in Key Assumptions

Because our actual experience regarding persistency and claim incidence has varied very little from our policy reserve and IBNR

claim reserve assumptions, we have had minimal adjustments to our persistency assumptions and claim incidence assumptions during

the years 2006 through 2008. Generally, we do not expect our mortality and morbidity claim incidence trends or our persistency trends to

change significantly in the short-term, and to the extent that these trends do change, we expect those changes to be gradual over a longer

period of time. However, we have historically experienced an increase in our group long-term disability morbidity claim incidence trends

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

during and following a recessionary period, particularly in our Unum US operations. Given the current weakening economy, it is possible

that our claim incidence rates for this type of product may increase.

Actual new money interest rates varied throughout 2008 but generally trended downward for all segments and product lines during

2007 and 2006. The assumptions we use to discount our reserves generally trended downward slightly for all segments and product lines

during 2008, 2007, and 2006. Reserve discount rate assumptions for new policies and new claims have been adjusted to reflect our current

and expected net investment returns. Changes in our discount rate assumptions tend to occur gradually over a longer period of time

because of the long duration investment portfolio needed to support the reserves for the majority of our lines of business.

Both the mortality rate experience and the retirement rate experience for our block of group pension products have remained stable

and consistent with expectations.

Claim resolution rates have a greater chance of significant variability in a shorter period of time than our other reserve assumptions.

These rates are reviewed on a quarterly basis for the death and recovery components separately. Claim resolution rates in our Unum US

segment group and individual long-term disability product lines and our Individual Disability — Closed Block segment have over the last

several years exhibited some variability. Relative to the resolution rate we expect to experience over the life of the block of business, actual

quarterly rates during the period 2006 through 2008 have varied by +7 and -5 percent in our Unum US group long-term disability line of

business, between +10 and -5 percent in our Unum US individual disability — recently issued line of business, and between +8 and -6 percent

in our Individual Disability — Closed Block segment.

Claim resolution rates are very sensitive to operational and environmental changes and can be volatile over short periods of time.

During 2006, we experienced quarter to quarter variability in our claim resolution rates. We believe this variability was primarily the result of

a short-term reduction in the operating effectiveness of our Unum US and Individual Disability — Closed Block segment claims management

performance. During 2007 and continuing throughout 2008, we gained more stability in our claims management performance, and our claim

resolution rates were more consistent with our long-term assumptions. 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.

We monitor and test our reserves for adequacy relative to all of our assumptions in the aggregate. In our estimation, scenarios based

on reasonably possible variations in each of our reserve assumptions, when modeled together in aggregate, could produce a potential

result, either positive or negative, in our Unum US group disability line of business that would change our reserve balance by +/- 2.5

percent. Using our actual claim reserve balance at December 31, 2008, this variation would have resulted in an approximate change (either

positive or negative) of $200 million to our claim reserves. Using the same sensitivity analysis approach for our Individual Disability —

Closed Block segment, the claim reserve balance could potentially vary by +/- 2.2 percent of our reported balance, which at December 31,

2008, would have resulted in an approximate change (either positive or negative) of $225 million to our claim reserves. The major contributor

to the variance for both the group long-term disability line of business and the Individual Disability — Closed Block segment is the claim

resolution rate. We believe that these ranges provide a reasonable estimate of the possible changes in reserve balances for those product

lines where we believe it is possible that variability in the assumptions, in the aggregate, could result in a material impact on our reserve

levels, but we record our reserves based on our long-term best estimate. Because these product lines have long-term claim payout periods,

there is a greater potential for significant variability in claim costs, either positive or negative.

Deferred Acquisition Costs (DAC)

We defer certain costs incurred in acquiring new business and amortize (expense) these costs over the life of the related policies.

Deferred costs include certain commissions, other agency compensation, selection and policy issue expenses, and field expenses.

Acquisition costs that do not vary with the production of new business, such as commissions on group products which are generally level

throughout the life of the policy, are excluded from deferral.

Over 90 percent of our DAC relates to traditional non interest-sensitive products, and we amortize DAC in proportion to the premium

income we expect to receive over the life of the policies in accordance with the provisions of Statement of Financial Accounting Standards

No. 60, Accounting and Reporting by Insurance Enterprises. Key assumptions used in developing the future amortization of DAC are future

persistency and future premium income. We use our own historical experience and expectation of the future performance of our businesses

69081_2008AR_FIN.indd 33

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

in determining the expected persistency and premium income. The estimated premium income in the early years of the amortization period

is generally higher than in the later years due to higher anticipated policy persistency in the early years, which results in a greater proportion

of the costs being amortized in the early years of the life of the policy. During 2006, our key assumptions used to develop the future amortization

did not change materially from those we had previously used. We adopted the provisions of SOP 05-1 effective January 1, 2007. The adoption

of SOP 05-1 shortened the amortization period of our Unum US and Unum UK group disability, group life, and group accidental death and

dismemberment products, as shown below. The amortization periods for the other product lines were not impacted by the adoption of

SOP 05-1. Generally, we do not expect our persistency or interest rates to change significantly in the short-term, and to the extent that these

trends do change, we expect those changes to be gradual over a longer period of time.

Presented below are our assumptions, both before and after the adoption of SOP 05-1, for the years 2008, 2007, and 2006, regarding

the length of our amortization periods and the approximate DAC balance that remains at the end of years 3, 10, and 15, as a percentage of

the cost initially deferred.

2008 and 2007

2006

Amortization
Period

Unum US

Group Disability

Group Life and Accidental

Death & Dismemberment

Supplemental and Voluntary

Individual Disability — Recently Issued

Long-term Care

Voluntary Benefits

Unum UK

Group Disability

Group Life

Individual Disability

Colonial Life

Balance Remaining as a %
of Initial Deferral
Year 10

Year 3

Year 15

Amortization
Period

Balance Remianing as a %
of Initial Deferral

Year 10

Year 15

25%

20% to 25%

75%

80%

55% to 60%

25%

20%

60%

50%

55%

15%

25%

25% to 30%

20% to 25%

10%

25%

10%

15%

50%

55%

15%

20%

15%

20%

25%

10%

Amortization of DAC on traditional products is adjusted to reflect the actual policy persistency as compared to the anticipated experience,

and as a result, the unamortized balance of DAC reflects actual persistency. We may experience accelerated amortization if policies terminate

earlier than projected. Because our actual experience regarding persistency and premium income has varied very little from our assumptions

during the last three years, we have had minimal adjustments to our projected amortization of DAC during those years. We measure the

recoverability of DAC annually by performing gross premium valuations. Our testing indicates that our DAC is recoverable.

Valuation of Investments

All of our fixed maturity securities are classified as available-for-sale and are reported at fair value. Our derivative financial instruments,

including certain derivative instruments embedded in other contracts, are reported as either assets or liabilities and measured at fair value.

We hold an immaterial amount of equity securities, which are also reported at fair value.

Effective January 1, 2008, we adopted the provisions of Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair Value

Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value

measurements. The adoption of SFAS 157 did not materially change the approach or methods we utilize for determining fair value

measurements or the fair values derived under those methods.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Definition of Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between

market participants at the measurement date and, therefore, represents an exit price, not an entry price. The exit price objective applies

regardless of a reporting entity’s intent and/or ability to sell the asset or transfer the liability at the measurement date.

The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing

observability. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively

quoted prices in active markets generally have more pricing observability and less judgment utilized in measuring fair value. An active

market for a financial instrument is a market in which transactions for an asset or a similar asset occur with sufficient frequency and

volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair

value and should be used to measure fair value whenever available. Conversely, financial instruments rarely traded or not quoted have

less observability and are measured at fair value using valuation techniques that require more judgment. Pricing observability is generally

impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and

not yet established, the characteristics specific to the transaction, and overall market conditions.

Valuation Techniques

Valuation techniques used for assets and liabilities accounted for at fair value are generally categorized into three types:

1. The market approach uses prices and other relevant information from market transactions involving identical or comparable

assets or liabilities. Valuation techniques consistent with the market approach often use market multiples derived from a set of

comparables or matrix pricing. Market multiples might lie in ranges with a different multiple for each comparable. The selection

of where within the range the appropriate multiple falls requires judgment, considering both quantitative and qualitative factors

specific to the measurement. Matrix pricing is a mathematical technique used principally to value certain securities without relying

exclusively on quoted prices for the specific securities but comparing the securities to benchmark or comparable securities.

2. The income approach converts future amounts, such as cash flows or earnings, to a single present amount, or a discounted amount.

Income approach techniques rely on current market expectations of future amounts. Examples of income approach valuation

techniques include present value techniques, option-pricing models that incorporate present value techniques, and the multi-period

excess earnings method.

3. The cost approach is based upon the amount that currently would be required to replace the service capacity of an asset, or the

current replacement cost. That is, from the perspective of a market participant (seller), the price that would be received for the asset

is determined based on the cost to a market participant (buyer) to acquire or construct a substitute asset of comparable utility.

We use valuation techniques that are appropriate in the circumstances and for which sufficient data are available that can be

obtained without undue cost and effort. In some cases, a single valuation technique will be appropriate (for example, when valuing an

asset or liability using quoted prices in an active market for identical assets or liabilities). In other cases, multiple valuation techniques

will be appropriate. If we use multiple valuation techniques to measure fair value, we evaluate and weigh the results, as appropriate,

considering the reasonableness of the range indicated by those results. A fair value measurement is the point within that range that is most

representative of fair value in the circumstances.

The selection of the valuation method(s) to apply considers the definition of an exit price and depends on the nature of the asset or

liability being valued. For assets and liabilities accounted for at fair value, we generally use valuation techniques consistent with the market

approach, and to a lesser extent, the income approach. We believe the market approach valuation technique provides more observable

data than the income approach, considering the type of investments we hold. Our fair value measurements could differ significantly based

on the valuation technique and available inputs. When markets are less active, brokers may rely more on models with inputs based on the

information available only to the broker. In weighing a broker quote as an input to fair value, we place less reliance on quotes that do not

reflect the result of market transactions. We also consider the nature of the quote, particularly whether the quote is an indicative price or a

binding offer. If prices in an inactive market do not reflect current prices for the same or similar assets, adjustments may be necessary to

arrive at fair value. When relevant market data is unavailable, which may be the case during periods of market uncertainty, the income

69081_2008AR_FIN.indd 35

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

approach can, in appropriate circumstances, provide a more appropriate fair value. During 2008, we have applied valuation techniques on a

consistent basis to similar assets and liabilities and consistent with those techniques used at year end 2007. Due to recent market conditions,

the mix and availability of observable inputs for valuation techniques have been volatile, and the risk inherent in the inputs is elevated

relative to prior periods.

Inputs to Valuation Techniques

Inputs refer broadly to the assumptions that market participants use in pricing assets or liabilities, including assumptions about risk, for

example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent

in the inputs to the valuation technique. Inputs may be observable or unobservable.

Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed

based on market data obtained from independent sources.

Unobservable inputs are inputs that reflect our own assumptions about the assumptions market participants would use in pricing

the asset or liability developed based on the best information available in the circumstances.

Observable inputs which we utilize to determine the fair values of our investments and derivative financial instruments include

indicative broker prices and prices obtained from external pricing services. At December 31, 2008, approximately 87.6 percent of our fixed

maturity securities were valued based on active trades and/or broker quotes or prices obtained from pricing services that generally use

observable inputs in their valuation techniques, with no additional adjustments to the prices. These assets were classified as either Level 1

or Level 2, with the categorization dependent on whether the price was for an actual representative sale, for identical assets actively

traded, and/or the quote binding or non-binding. We generally obtain, on average, one quote per financial instrument. We review the

prices obtained to ensure they are consistent with a variety of observable market inputs and to verify the validity of a security’s price.

These inputs, along with our knowledge of the financial conditions and industry in which the issuer operates, will be considered in

determining whether the quoted or indicated price, as well as the change in price from quarter to quarter, are valid.

On selected securities where there is not an indicated price or where we cannot validate the price, some combination of market inputs

may be used to determine a price using a pricing matrix, or we may use pricing inputs from a comparable security. At December 31, 2008,

we valued approximately 9.8 percent of our fixed maturity securities using this method. These assets were classified as Level 2. The

parameters and inputs used to validate a price on a security may be adjusted for assumptions about risk and current market conditions

on a quarter to quarter basis, as certain features may be more significant drivers of valuation at the time of pricing. Changes to inputs in

valuations are not changes to valuation methodologies; rather, the inputs are modified to reflect direct or indirect impacts on asset classes

from changes in market conditions.

We consider transactions in inactive or disorderly markets to be less representative of fair value. We use all available observable

inputs when measuring fair value, but when significant other unobservable inputs and adjustments are necessary, we classify these

assets as Level 3.

Inputs that may be used include the following:

• Benchmark yields (Treasury and swap curves)

• Transactional data for new issuance and secondary trades

• Broker/dealer quotes and pricing

• Security cash flows and structures

• Recent issuance/supply

• Sector and issuer level spreads

• Credit ratings/maturity/weighted average life/seasoning/capital structure

• Security optionality

• Corporate actions

• Underlying collateral

• Prepayment speeds/loan performance/delinquencies

• Public covenants

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

• Comparative bond analysis

• Derivative spreads

• Third-party pricing sources

• Relevant reports issued by analysts and rating agencies

The overall valuation process for determining fair values may include adjustments to valuations obtained from our pricing sources

when they do not represent a valid exit price. These adjustments may be made when, in our judgment, certain features of the financial

instrument, such as its complexity or the market in which the financial instrument is traded (such as counterparty, credit, concentration, or

liquidity), require that an adjustment be made to the value originally obtained from our pricing sources. Additionally, an adjustment to the

price derived from a model typically reflects our judgment of the inputs that other participants in the market for the financial instrument

being measured at fair value would consider in pricing that same financial instrument.

We analyze credit default swap spreads relative to the average credit spread embedded within the London Interbank Offered Rate

(LIBOR) setting syndicate in determining the effect of credit risk on our derivatives’ fair values. If counterparty credit risk for a derivative

asset is determined to be material and is not adequately reflected in the LIBOR-based fair value obtained from our pricing sources, we

adjust the valuations obtained from our pricing sources. In regards to our own credit risk component, we adjust the valuation of derivative

liabilities wherein the counterparty is exposed to our credit risk when the LIBOR-based valuation of our derivatives obtained from pricing

sources does not effectively include an adequate credit component for our own credit risk.

Certain of our investments do not have readily determinable market prices and/or observable inputs or may at times be affected by

the lack of market liquidity. For these securities, we use internally prepared valuations combining matrix pricing with vendor purchased

software programs, including valuations based on estimates of 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 premiums, performance of underlying collateral (if any), and

other factors involving significant assumptions which may or may not reflect those of an active market.

As of December 31, 2008, the key assumptions we generally used to estimate the fair value of these types of securities included those

listed below. Where appropriate, we have noted the assumption used for the prior period as well as the reason for the change.

• Risk free interest rates of 1.55 percent for five-year maturities to 2.68 percent for 30-year maturities were derived from the current

yield curve for U.S. Treasury Bonds with similar maturities. This compares to interest rates of 3.44 percent for five-year maturities to

4.45 percent for 30-year maturities used at December 31, 2007.

• Current Baa corporate bond spreads ranging from 5.28 percent to 7.75 percent plus an additional 20 basis points were added to the risk

free rate to reflect the lack of liquidity. We used spreads ranging from 1.81 percent to 2.15 percent plus an additional 20 basis points

at December 31, 2007. The changes were based on observable market spreads. Newly issued private placement securities have

historically offered yield premiums of 20 basis points over comparable newly issued public securities.

• An additional five basis points were added to the risk free rates for foreign investments, consistent with December 31, 2007.

• Additional basis points were added as deemed appropriate for certain industries and for individual securities in certain industries that

are considered to be of greater risk.

Increasing the 20 basis points added to the risk free rate for lack of liquidity by 1.5 basis points, increasing the five basis points added

to the risk free rates for foreign investments by one basis point, and increasing the additional basis points added to each industry considered

to be of greater risk by one basis point would have decreased the December 31, 2008 fair value of our fixed maturity securities portfolio by

approximately $1.1 million. We believe this range of variability is appropriate, and although the current market is very volatile, historically

the inputs noted have generally not deviated outside the range provided.

We regularly test the validity of the fair values determined by our valuation techniques by comparing the prices of assets sold to the

fair values reported for the assets in the immediately preceding reporting period. Historically, our realized gains or losses on dispositions of

investments have not varied significantly from amounts estimated under the valuation methodologies described above, which, combined

with the results of our testing, indicates to us that our pricing methodologies are appropriate.

69081_2008AR_FIN.indd 37

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Fair Value Hierarchy

Financial instruments measured at fair value are categorized into a three-level classification. The lowest level input that is significant to

the fair value measurement of a financial instrument is used to categorize the instrument and reflects the judgment of management. Financial

assets and liabilities presented at fair value in our consolidated balance sheets generally are categorized as follows:

• Level 1 — Inputs are unadjusted and represent quoted prices in active markets for identical assets or liabilities at the measurement date.

• Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability

through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. Level 2

inputs include, for example, indicative prices obtained from brokers or pricing services validated to other observable market data and

quoted prices for similar assets or liabilities.

• Level 3 — Inputs reflect our best estimate of what market participants would use in pricing the asset or liability at the measurement

date. Generally, assets and liabilities carried at fair value and included in this category are comprised of certain mortgage and asset-

backed securities, certain corporate fixed maturity securities, certain private equity investments, and certain derivatives. Financial

assets and liabilities presented at fair value and categorized as Level 3 are generally those that are valued using unobservable inputs

to extrapolate an estimated fair value. The inputs reflect our assumptions about the assumptions that market participants would

use in pricing the instrument in a current period transaction, and outputs represent an exit price and expected future cash flows.

Unobservable inputs are primarily internally derived credit spread assumptions and lack of liquidity assumptions and are unobservable

due to the lack of an active market pertaining to these securities.

As of December 31, 2008, approximately 9.4 percent of our fixed maturity securities were categorized as Level 1, 88.3 percent as Level 2,

and 2.3 percent as Level 3. During 2008, we transferred $672.6 million of fixed maturity securities into Level 3 and $160.0 million of fixed maturity

securities out of Level 3. The reclassifications between levels resulted primarily from a change in observability of three inputs used to determine

fair values of the securities reclassified: (1) transactional data for new issuance and secondary trades, (2) broker/dealer quotes and pricing,

primarily related to the lack of an active and orderly market, and (3) comparable bond metrics from which to perform an analysis. For fair value

measurements of financial instruments that were transferred either into or out of Level 3, we reflect the transfers using the fair value at the

beginning of the period. We believe this allows for greater transparency as all changes in fair value that arise during the reporting period of

the transfer are disclosed as a component of our Level 3 reconciliation as shown in Note 4 of the “Notes to Consolidated Financial Statements.”

Other than Temporary Impairment Analysis for Investments

In determining other than temporary impairments for our investment portfolio, we evaluate the following factors, as applicable for

each type of investment:

• The probability of recovering principal and interest.

• Our ability and intent to retain the security for a sufficient period of time for it to recover.

• Whether the security is current as to principal and interest payments.

• The significance of the decline in value.

• The time period during which there has been a significant decline in value.

• 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 actions.

• Bid and offering prices and the level of trading activity.

• Adverse changes in estimated cash flows for securitized investments.

• Any other key measures for the related security.

69081_2008AR_FIN.indd 38

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Our review procedures include, but are not limited to, monthly meetings of certain members of our senior management personnel

to review reports on the entire portfolio, identifying investments with changes in market value of five percent or more, investments with

changes in rating either by external rating agencies or internal analysts, investments segmented by issuer, industry, and foreign exposure

levels, and any other relevant investment information to help identify our exposure to possible credit losses. We also determine if our

investment portfolio is overexposed to an issuer that is showing warning signs of deterioration and, if so, we make no further purchases

of that issuer’s securities and may seek opportunities to sell securities we hold from that issuer to reduce our exposure.

We monitor below-investment-grade fixed maturity securities as to individual exposures and in comparison to the entire portfolio

as an additional credit risk management strategy, looking specifically at our exposure to individual securities currently classified as below-

investment-grade. In determining current and future business prospects and cash availability, we consider the parental support of an issuer

in our analysis but do not rely heavily on this support.

We use a comprehensive rating system to evaluate the investment and credit risk of our mortgage loans and to identify specific

properties for inspection and reevaluation. Mortgage loans are considered impaired when, based on current information and events, it is

probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. We establish an

allowance for probable losses on mortgage loans based on a review of individual loans and the overall loan portfolio, considering the

value of the underlying collateral.

Based on our review of the entire investment portfolio, individual investments may be added to or removed from our “watch list,”

which is a list of investments subject to enhanced monitoring and a more intensive review. If we determine that the decline in value of an

investment is other than temporary, the investment is written down to fair value, and an impairment loss is recognized in the current period

to the extent of the decline in value. If the decline is considered temporary, the investment continues to be carefully monitored. These

controls have been established to identify our exposure to possible credit losses and are intended to give us the ability to respond rapidly.

Changes in the fair values of fixed maturity securities and derivative financial instruments designated as cash flow hedges, other

than declines that are determined to be other than temporary, are reported as a component of other comprehensive income in stockholders’

equity. If we subsequently determine that any of these securities are other than temporarily impaired, the impairment loss is reported as a

realized investment loss in our consolidated statements of income. The recognition of the impairment loss does not affect total stockholders’

equity to the extent that the decline in value had been previously reflected in other comprehensive income. Mortgage loans are not reported

at fair value in our consolidated balance sheets unless the decline in value is considered to be other than temporary, in which case the

reduction is recognized as a realized investment loss in our consolidated statements of income.

There are a number of significant risks inherent in the process of monitoring our investments for impairments and determining when

and if an impairment is other than temporary. These risks and uncertainties include the following possibilities:

• The assessment of a borrower’s ability to meet its contractual obligations will change.

• The economic outlook, either domestic or foreign, may be less favorable or may have a more significant impact on the borrower

than anticipated, and as such, the investment may not recover in value.

• New information may become available concerning the security, such as disclosure of accounting irregularities, fraud, or corporate

governance issues.

• Significant changes in credit spreads may occur in the related industry.

• Significant increases in interest rates may occur and may not return to levels similar to when securities were initially purchased.

• Adverse rating agency actions may occur.

Pension and Postretirement Benefit Plans

We sponsor several defined benefit pension and other postretirement benefit (OPEB) plans for our employees, including

non-qualified pension plans. The U.S. pension plans comprise the majority of our total benefit obligation and pension expense. Our U.K.

operation maintains a separate defined benefit plan for eligible employees. The U.K. defined benefit pension plan was closed to new

entrants on December 31, 2002.

69081_2008AR_FIN.indd 39

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

We follow Statements of Financial Accounting Standards No. 87 (SFAS 87), Employers’ Accounting for Pensions, No. 106 (SFAS 106),

Employers’ Accounting for Postretirement Benefits Other Than Pensions, No. 132 (SFAS 132), Employers’ Disclosures about Pensions and

Other Postretirement Benefits, and No. 158 (SFAS 158), Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,

an amendment of FASB Statements No. 87, 88, 106, and 132(R) in our financial reporting and accounting for our pension and postretirement

benefit plans. See Note 9 of the “Notes to Consolidated Financial Statements” for further discussion.

Our net periodic benefit costs and the value of our benefit obligations for these plans are determined based on a set of economic and

demographic assumptions that represent our best estimate of future expected experience. Major assumptions used in accounting for these

plans include the expected discount (interest) rate and the long-term rate of return on plan assets. We also use, as applicable, expected

increases in compensation levels and a weighted-average annual rate of increase in the per capita cost of covered benefits, which reflects a

health care cost trend rate.

The assumptions chosen for our pension and OPEB plans generally use consistent methodology but reflect the differences in the plan

obligations. The assumptions are reviewed annually, and we use a December 31 measurement date for each of our plans. The discount rate

assumptions and expected long-term rate of return assumptions have the most significant effect on our net periodic benefit costs associated

with these plans. In addition to the effect of changes in our assumptions, the net periodic cost or benefit obligation under our pension and

OPEB plans may change due to factors such as actual experience being different from our assumptions, special benefits to terminated

employees, or changes in benefits provided under the plans.

Discount Rate Assumptions

The discount rate is an interest assumption used to convert the benefit payment stream to a present value. We set the discount rate

assumption at the measurement date for each of our retirement related benefit plans to reflect the yield of a portfolio of high quality fixed

income debt instruments matched against the timing and amounts of projected future benefits. A lower discount rate increases the present

value of benefit obligations and increases our costs.

The discount rate we used to determine our 2009 net periodic benefit costs for our U.S. pension plans was 6.40 percent, compared to

6.50 percent for 2008. The discount rate used for the net periodic benefit costs for 2009 and 2008 for our U.K. pension plan was 6.40 percent

and 5.80 percent, respectively. The discount rate used in the net periodic benefit cost for our OPEB plan for 2009 and 2008 was 6.10 percent

and 6.30 percent, respectively.

Reducing the discount rate assumption by 50 basis points would have resulted in an increase in our 2008 pension expense of

approximately $11.5 million, before tax, and an increase in our benefit obligation of approximately $101.1 million as of December 31, 2008,

resulting in an after-tax decrease in stockholders’ equity of approximately $66.9 million as of December 31, 2008. A 50 basis point reduction

in the discount rate assumption would not change our annual OPEB costs.

Increasing the discount rate assumption by 50 basis points would have resulted in a decrease in our 2008 pension expense of

approximately $10.4 million, before tax, and a decrease in our benefit obligation of approximately $89.6 million as of December 31, 2008,

resulting in an after-tax increase in stockholders’ equity of approximately $59.3 million as of December 31, 2008. A 50 basis point increase

in the discount rate assumption would not change our annual OPEB costs.

Long-Term Rate of Return Assumptions

The long-term rate of return assumption is the best estimate of the average annual assumed return that will be produced from the

pension trust assets until current benefits are paid. We use a compound interest method in computing the rate of return on pension plan

assets. The investment portfolio for our U.S. pension plans contains a diversified blend of domestic and international large cap, mid cap, and

small cap equity securities, investment-grade and below-investment-grade fixed income securities, private equity funds of funds, and

hedge funds of funds. Assets for our U.K. pension plan are invested in pooled funds, with approximately 57 percent in diversified growth

assets including global equities, hedge funds, commodities, below-investment-grade fixed income securities, and currencies. The remainder

of the assets for our U.K. plan is predominantly invested in fixed interest U.K. corporate bonds and index linked U.K. government bonds. Assets

for our OPEB plan are invested primarily within life insurance contracts issued by one of our insurance subsidiaries. The terms of these

contracts are consistent in all material respects with those the subsidiary offers to unaffiliated parties that are similarly situated. We

believe our investment portfolios are well diversified by asset class and sector, with no potential risk concentrations in any one category.

69081_2008AR_FIN.indd 40

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Our expectations for the future investment returns of the asset categories are based on a combination of historical market

performance and evaluations of investment forecasts obtained from external consultants and economists. The methodology underlying

the return assumption included the various elements of the expected return for each asset class such as long-term rates of return, volatility

of returns, and the correlation of returns between various asset classes. The expected return for the total portfolio is calculated based on

the plan’s strategic asset allocation. Investment risk is measured and monitored on an ongoing basis through annual liability measurements,

periodic asset/liability studies, and quarterly investment portfolio reviews. Risk tolerance is established through consideration of plan

liabilities, plan funded status, and corporate financial condition.

The long-term rate of return on assets used in the net periodic pension costs for our U.S. qualified defined benefit pension plan for

2009 and 2008 was 7.50 percent for both years. The long-term rate of return on asset assumption used for 2009 and 2008 for our U.K.

pension plan was 7.20 percent and 6.90 percent, respectively, and for our OPEB plan, 5.75 percent for both years. The actual rate of return

on plan assets is determined based on the fair value of the plan assets at the beginning and the end of the period, adjusted for

contributions and benefit payments.

Changing the expected long-term rate of return on the plan assets by +/-50 basis points would have changed our 2008 pension plan

expense by approximately $4.9 million before tax, but our OPEB plan expense would not change. A lower rate of return on plan assets

increases our expense.

Benefit Obligation and Fair Value of Plan Assets

The market related value equals the fair value of assets, determined as of the measurement date. The assets are not smoothed for

purposes of SFAS 87. The expected return on assets, therefore, fully recognizes all asset gains and losses, including changes in fair value,

through the measurement date.

The fair value of our plan assets is determined in accordance with SFAS 157. During 2008, the fair value of our plan assets in our U.S.

qualified defined benefit pension plan declined $126.2 million, or approximately 16.1 percent. The fair value of plan assets for our U.K.

pension plan declined £11.7 million, or approximately 12.5 percent, during 2008. Although the effect of these declines had no impact on

our 2008 net periodic pension costs, the unfavorable rate of return on plan assets in 2008 increases our net periodic pension costs for 2009.

We expect that our 2009 pension costs will be approximately $42.5 million higher than our pension costs for 2008. We believe our

assumptions appropriately reflect the impact of a prolonged market decline.

Our pension and OPEB plans have an aggregate unrecognized net actuarial loss and an unrecognized prior service credit, which represent

the cumulative liability and asset gains and losses and the portion of prior service credits that have not been recognized in pension

expense. As of December 31, 2008, the unrecognized net loss for these two items combined was approximately $622.0 million compared

to $301.8 million at December 31, 2007. The increase is primarily due to the unfavorable rate of return on plan assets in 2008 and to the

decrease in the year end discount rate for our U.S. pension plans. Prior to the adoption of SFAS 158, unrecognized actuarial gains or losses

and prior service costs or credits were amortized as a component of pension expense but were not reported in companies’ balance sheets.

SFAS 158 requires that actuarial gains or losses and prior service costs or credits that have not yet been included in net periodic benefit cost

as of the adoption date of SFAS 158 be recognized as components of accumulated other comprehensive income, net of tax. The unrecognized

gains or losses will be amortized out of accumulated other comprehensive income and included as a component of the net benefit cost, as

they were prior to the adoption of SFAS 158. Our 2008, 2007, and 2006 pension and OPEB expense includes $10.6 million, $15.3 million,

and $17.8 million, respectively, of amortization of the unrecognized net actuarial loss and prior service credit. The unrecognized net actuarial

loss for our pension plans, which is $625.7 million at December 31, 2008, will be amortized over the average future working life of pension

plan participants, currently estimated at 12 years for U.S. participants and 15 years for U.K. participants. The unrecognized net actuarial loss

of $6.2 million for our OPEB plan will be amortized over the average future working life of OPEB plan participants, currently estimated at

10 years, to the extent the loss is outside of a corridor established in accordance with GAAP. The corridor is established based on the greater

of 10 percent of the plan assets or 10 percent of the accumulated postretirement benefit obligation. At December 31, 2008, none of the

actuarial loss was outside of the corridor.

69081_2008AR_FIN.indd 41

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

The fair value of plan assets in our U.S. qualified defined benefit pension plan was $658.1 million at December 31, 2008, compared

to $784.3 million at year end 2007. This decline in fair value of plan assets, as well as the decrease in the discount rate, more than offset

the effect of the plan contribution during 2008, resulting in a year end deficit funding level in the plan of $266.9 million as of December 31,

2008, compared to a deficit of $43.8 million as of December 31, 2007.

The fair value of plan assets in our OPEB plan was $12.0 million at December 31, 2008 and 2007. These assets represent life insurance

reserves to fund the life insurance benefit portion of our OPEB plan. Our OPEB plan represents a non-vested, non-guaranteed obligation,

and current regulations do not require specific funding levels for these benefits, which are comprised of retiree life, medical, and dental

benefits. It is our practice to use general assets to pay medical and dental claims as they come due in lieu of utilizing plan assets for the

medical and dental benefit portions of our OPEB plan. We expect to receive subsidies under the Medicare Prescription Drug, Improvement

and Modernization Act of 2003 to partially offset these payments.

Our expected return on plan assets and discount rate discussed above will not affect the cash contributions we are required to make

to our U.S. pension and OPEB plans because we have met all minimum funding requirements set forth by ERISA. We had no regulatory

contribution requirements for 2008 and 2007; however, we elected to make voluntary contributions of $130.0 million and $110.0 million,

respectively, to our U.S. qualified defined benefit pension plan. We expect to make a voluntary contribution of approximately $70.0 million

in 2009, based on current tax law.

During 2006, the federal government enacted the Pension Protection Act of 2006 which requires companies to fully fund defined

benefit pension plans over a seven year period. We have evaluated this requirement and have made estimates of amounts to be funded in

the future. Based on this assessment, we do not believe that the funding requirements of the Pension Protection Act will cause a material

adverse effect on our liquidity.

The fair value of plan assets for our U.K. pension plan was £82.1 million at December 31, 2008, compared to £93.8 million at

December 31, 2007. The U.K. pension plan has a deficit of £4.7 million at December 31, 2008, compared to £0.9 million at December 31,

2007. We contribute to the plan in accordance with a schedule of contributions which requires that we contribute to the plan at the rate of

at least 15.0 percent of employee salaries, sufficient to meet the minimum funding requirement under U.K. legislation. During 2008, we

made a required contribution of £4.0 million. During 2007, we made a required contribution of £5.3 million. We anticipate that we will

make contributions during 2009 of approximately £3.5 million.

Income Taxes

We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. Our valuation

allowance relates primarily to assets for foreign net operating loss carryforwards and assets for our basis in certain of our foreign

subsidiaries that are not likely to be realized in the future based on our expectations using currently available evidence. In evaluating the

ability to recover deferred tax assets, we have considered all available positive and negative evidence including past operating results, the

existence of cumulative losses in the most recent years, forecasted earnings, future taxable income, and prudent and feasible tax planning

strategies. In the event we determine that we most likely would not be able to realize all or part of our deferred tax assets in the future,

an increase to the valuation allowance would be charged to earnings in the period such determination is made. Likewise, if it is later

determined that it is more likely than not that those deferred tax assets would be realized, the previously provided valuation allowance

would be reversed.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws in a multitude of jurisdictions,

both domestic and foreign. The amount of income taxes we pay is subject to ongoing audits in various jurisdictions, and a material assessment

by a governing tax authority could affect profitability.

69081_2008AR_FIN.indd 42

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax

positions taken or expected to be taken in income tax returns. The evaluation of a tax position under FIN 48 is a two step process. The first

step is to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical

merits of the position. The second step is to measure a position that satisfies the recognition threshold at the largest amount of benefit that

is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more likely

than not threshold but that now satisfy the recognition threshold are recognized in the first subsequent financial reporting period in which

that threshold is met. Previously recognized tax positions that no longer meet the more likely than not recognition threshold are derecognized

in the first subsequent financial reporting period in which that threshold is no longer met. If a previously recognized tax position is settled for

an amount that is different from the amount initially measured under FIN 48, the difference will be recognized as a tax benefit or expense in

the period the settlement is effective. We believe that tax positions have been reflected in our financial statements at appropriate amounts

in conformity with FIN 48.

Consolidated Operating Results

(in millions of dollars)

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

Commissions

Interest and Debt Expense

Deferral of Acquisition Costs

Amortization of Deferred Acquisition Costs

Compensation Expense

Other Expenses

Total

Income from Continuing Operations

Before Income Tax

Income Tax

Income from Continuing Operations

Income from Discontinued Operations

Net Income

N.M. = not a meaningful percentage

Year Ended December 31

2008

% Change

2007

% Change

2006

(1.5)%

$ 7,901.1

(0.6)%

$7,948.2

2,409.9

(65.2)

274.1

3.8

N.M.

3.7

2,320.6

2.2

264.3

10,519.9

(0.1)

10,535.3

$7,783.3

2,389.0

(465.9)

275.9

9,982.3

6,626.4

853.3

156.7

(590.9)

519.1

772.6

821.1

(0.9)

N.M.

0.7

(5.1)

(5.2)

1.5

(35.2)

6.2

8.1

6.9

2.0

6,988.2

841.1

241.9

(556.3)

480.4

722.4

805.0

9,158.3

(3.8)

9,522.7

824.0

270.8

553.2

(17.4)

(16.6)

(17.7)

—

(100.0)

997.2

324.8

672.4

6.9

$ 553.2

(18.6)

$ 679.3

(7.8)

2.7

11.2

5.3

0.4

6.2

(2.4)

(5.4)

114.3

N.M.

66.6

(6.8)

65.3

7,577.2

819.0

217.6

(528.2)

478.6

680.5

825.2

10,069.9

465.4

61.8

403.6

7.4

$ 411.0

69081_2008AR_FIN.indd 43

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

The following chart lists charges in 2007 and 2006 which affect the comparability of our financial results. In describing our results, we

may at times note these items and exclude the impact on financial ratios and metrics to enhance the understanding and comparability of

our Company’s performance and the underlying fundamentals in our operations, but this exclusion is not an indication that similar items

may not recur.

(in millions of dollars)

Benefits and Change in Reserves for Future Benefits

Regulatory Claim Reassessment Charges

Other Operating Expenses

Regulatory Claim Reassessment Charges

Broker Compensation Settlements

Total Charges, Before Tax

Total Charges, After Tax

Year Ended December 31

2007

2006

$ 65.8

$396.4

(12.8)

—

$ 53.0

$ 34.5

15.0

18.5

$429.9

$280.1

Also affecting comparability of our financial results between years is the fluctuation in the British pound sterling to dollar exchange rate.

The functional currency of our U.K. operations is the British pound sterling. In periods when the pound weakens, translating pounds into

dollars decreases current period results relative to the prior period. In periods when the pound strengthens, translating pounds into dollars

increases current period results in relation to the prior period. However, it is important to distinguish between translating and converting

foreign currency. Except for a limited number of transactions, we do not actually convert pounds into dollars. As a result, we view foreign

currency translation as a financial reporting issue and not a reflection of operations or profitability in the U.K. Because of the volatility in the

weighted average pound/dollar exchange rate during the last three years, results translated into dollars are not comparable between years.

Our weighted average pound/dollar exchange rate was 1.871, 2.004, and 1.851 for the years ended 2008, 2007, and 2006, respectively. Our

operating revenue and operating income by segment would have been higher in 2008 by approximately $86.7 million and $24.2 million,

respectively, and higher in 2006 by approximately $86.7 million and $21.3 million, respectively, if the results for our U.K. operations had been

translated at a constant exchange rate of 2.004, the rate for 2007.

Consolidated premium income for both 2008 and 2007 includes premium growth, relative to the preceding year, for Unum US supplemental

and voluntary lines of business and Colonial Life. Unum US group disability and group life and accidental death and dismemberment lines

of business experienced year over year declines in premium income during 2008 and 2007, as expected, due primarily to our continued

pricing discipline for our Unum US group business and our strategy of developing a more balanced business mix. However, both premium

and case persistency for these lines of business improved during 2008 relative to 2007 and 2006, indicating that persistency for these

product lines has begun to stabilize as expected. Unum UK premium income, in local currency, increased in 2007 relative to the prior

year but declined in 2008 due to lower persistency in the group long-term disability line of business. Premium income in the Individual

Disability — Closed Block segment decreased in 2008 and 2007, as expected in this closed block of business.

Net investment income is marginally lower in 2008 relative to the prior year. Our portfolio yield has increased slightly year over year

due to the investment of new cash at higher rates than that of prior periods, particularly during the last two quarters of 2008. We also

received fewer bond call premiums in 2008 relative to prior year periods, and the level of prepayment income on mortgage-backed

securities declined in 2008 relative to the preceding year. The weaker pound in 2008 relative to 2007 also unfavorably affected translated

results for net investment income. Somewhat mitigating the impact of these items is continued growth in the level of invested assets.

Net investment income increased in 2007 relative to the prior year. The increase was due primarily to growth in invested assets,

partially offset by a lower yield due to the investment of new cash at lower rates than that of our existing portfolio yield and a decline in

the level of prepayment income on mortgage-backed securities. The pound strengthened during 2007 relative to 2006, which favorably

affected translated results for net investment income.

69081_2008AR_FIN.indd 44

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

We reported a net realized investment loss of $465.9 million in 2008 compared to a loss of $65.2 million in 2007 and a gain of $2.2 million

in 2006. Included in 2008 realized investment losses are $174.2 million of net realized investment losses from sales and write-downs of

investments. The 2008 losses relate primarily to fixed maturity securities in the financial institutions, automotive, and media sectors that

we either sold or considered other than temporarily impaired during the third and fourth quarters of 2008. Also reported as realized investment

gains and losses is the change in the fair value of an embedded derivative, as required under the provisions of Statement of Financial Accounting

Standards No. 133 Implementation Issue B36 (DIG Issue B36), Embedded Derivatives: Modified Coinsurance Arrangements and Debt

Instruments That Incorporate Credit Risk Exposure That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor Under

Those Instruments. During 2008, changes in the fair value of the embedded derivative resulted in net realized losses of $291.7 million

compared to net realized losses of $57.3 million and $5.3 million in 2007 and 2006, respectively. The DIG Issue B36 losses in both 2008 and

2007 resulted primarily from a widening of credit spreads in the overall investment market.

DIG Issue B36 relates to one modified coinsurance arrangement entered into in 2000 wherein we assumed the profits and losses

related to a closed block of individual disability business. DIG Issue B36 requires us to include in our realized investment gains and losses a

calculation intended to estimate the value of the option of our reinsurance counterparty to cancel the reinsurance contract with us. However,

neither party can unilaterally terminate the reinsurance agreement except in extreme circumstances resulting from regulatory supervision,

delinquency proceedings, or other direct regulatory action. Cash settlements or collateral related to this embedded derivative are not

required at any time during the reinsurance contract or at termination of the reinsurance contract, and any accumulated embedded derivative

gain or loss reduces to zero over time as the reinsured business winds down. We therefore view DIG Issue B36 as a reporting requirement

that will not result in a permanent reduction of assets or stockholders’ equity. See “Investments” contained herein for further discussion.

The reported ratio of benefits and change in reserves for future benefits to premium income was 85.1 percent in 2008 compared to

88.4 percent in 2007 and 95.3 percent for 2006, with improved risk results in each of our segments and in most lines of business within

the Unum US segment. As previously discussed, our reported benefits and change in reserves for future benefits in 2007 and 2006 include

charges pertaining to our claim reassessment process required by the regulatory settlement agreements. Excluding these charges, the

ratio of benefits and change in reserves for future benefits to premium income was 87.6 percent for 2007 and 90.3 percent for 2006. See

“Segment Results” as follows for discussions of line of business risk results and claims management performance in each of our segments.

Interest and debt expense for 2008 is lower than 2007 due to lower rates of interest on our outstanding debt, primarily as a result of

the replacement of older fixed rate debt with non-recourse floating rate debt, and due to lower cost for early retirement of debt. Interest

and debt expense in 2007 increased from the level of 2006 due to an increase in cost related to early retirement of debt, offset partially by

the reduction in our outstanding debt. The cost related to early retirement of debt is minimal in 2008. Costs related to early retirement of

debt for 2007 and 2006 were $58.8 million and $25.8 million, respectively, and were related to our $769.5 million and $732.0 million debt

repurchases during those two years. See “Debt” contained herein for additional information.

The deferral and amortization of deferred acquisition costs was higher in both 2008 and 2007 relative to the prior year comparable

period due primarily to continued growth in certain of our product lines. Amortization also increased in 2008 due to an increase in the

amortization related to Unum US internal replacement transactions that result in a policy that is substantially changed as well as slightly

elevated persistency in certain policy issue years.

Operating expenses have increased year over year for expenditures related to our investment in brand and product promotion and an

increase in product and service development costs in our core lines of business. In addition to the adjustments to other operating expenses

as noted in the preceding chart, additional expenses of note in 2008 include a $5.6 million settlement regarding broker compensation as

well as litigation expenses related to two pending cases in our individual disability — closed block segment. During 2007, expenses include

an $11.6 million settlement related to a plan beneficiary class action. We intend to aggressively manage our expenses while continuing

to increase the effectiveness of our operating processes.

Income tax for 2006 includes tax benefits of $91.9 million as a result of the reversal of tax liabilities related primarily to group relief

benefits recognized from the use of net operating losses in a foreign jurisdiction in which our businesses operate.

69081_2008AR_FIN.indd 45

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Consolidated Sales Results

(in millions of dollars)

Unum US

Fully Insured Products

Administrative Services Only (ASO) Products

Total Unum US

Unum UK

Colonial Life

Individual Disability — Closed Block

Year Ended December 31

2008

% Change

2007

% Change

2006

$ 701.5

11.2)%

$ 631.0

(6.1)%

$ 671.8

7.2

708.7

99.5

340.2

2.4

—

11.0

(5.6)

1.6

(20.0)

7.2

(47.4)

638.2

105.4

334.9

(6.9)

4.3

6.3

3.0

(31.8)

13.7

685.5

101.1

315.1

4.4

Consolidated

$1,150.8

6.4

$1,081.5

(2.2)

$1,106.1

Sales results shown in the preceding chart generally represent the annualized premium or annualized fee income on new sales which

we expect to receive and report as premium income or fee income during the next 12 months following or beginning in the initial quarter

in which the sale is reported, depending on the effective date of the new sale. Sales do not correspond to premium income or fee income

reported as revenue in accordance with GAAP. This is because new annualized sales premiums reflect current sales performance and what

we expect to recognize as premium or fee income over a 12 month period, while premium income and fee income reported in our financial

statements are reported on an “as earned” basis rather than an annualized basis and also include renewals and persistency of in force

policies written in prior years as well as current new sales.

Premiums for fully insured products are reported as premium income. Fees for ASO products (those where the risk and responsibility

for funding claim payments remain with the customer and we only provide services) are included in other income. Sales, persistency of the

existing block of business, and the effectiveness of the renewal program are indicators of growth in our premium and fee income. Trends in

new sales, as well as existing market share, also indicate our potential for growth in our respective markets and the level of market acceptance

of price changes and new product offerings. Sales results may fluctuate significantly due to case size and timing of sales submissions.

We intend to continue with our disciplined approach to pricing and also with our strategy of developing a more balanced business mix.

This strategy is expected to result in a lower premium persistency or market share, particularly in the large case Unum US group market, but

historically the profitability of business that terminates has generally been lower than the profitability of retained business. We do not anticipate

a decline in the number of cases, or case persistency, for our Unum US group market on an aggregate basis.

See “Segment Results” as follows for additional discussion of sales by segment.

Segment Results

Our reporting segments are comprised of the following: Unum US, Unum UK, Colonial Life, Individual Disability — Closed Block,

and Corporate and Other. Effective with the fourth quarter of 2008, we made slight modifications to our reporting segments to better align

the debt of our securitizations with the business segments and to align the allocation of capital for Unum UK similar to that of Unum US and

Colonial Life. Specifically, we transferred the assets, non-recourse debt, and associated capital of Tailwind Holdings, LLC (Tailwind Holdings)

and Northwind Holdings, LLC (Northwind Holdings) from our former Corporate segment to Unum US group disability and Individual

Disability — Closed Block, respectively. We transferred excess assets, capital in excess of target, and the associated investment income from

Unum UK to our Corporate and Other segment. We also modified the investment income allocation on capital supporting certain of our

group disability and long-term care product lines within Unum US and have also aggregated our former Other segment and Corporate

segment into one reporting segment. Financial results previously reported have been revised to reflect these reclassifications.

69081_2008AR_FIN.indd 46

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

In the following segment financial data and discussions of segment results, “operating revenue” excludes net realized investment

gains and losses. “Operating income” or “operating loss” excludes net realized investment gains and losses and income tax. These are

considered non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company’s performance, financial

position, or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable

measure calculated and presented in accordance with GAAP.

These non-GAAP financial measures of “operating revenue” and “operating income” or “operating loss” differ from revenue and income

(loss) from continuing operations before income tax as presented in our consolidated operating results and in income statements prepared

in accordance with GAAP due to the exclusion of before tax realized investment gains and losses. We measure segment performance for

purposes of Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information,

excluding realized investment gains and losses because we believe that this performance measure is a better indicator of the ongoing

businesses and the underlying trends in the businesses. Our investment focus is on investment income to support our insurance liabilities as

opposed to the generation of realized investment gains and losses, and a long-term focus is necessary to maintain profitability over the life

of the business. Realized investment gains and losses depend on market conditions and do not necessarily relate to decisions regarding the

underlying business of our segments. However, income or loss excluding realized investment gains and losses does not replace net income

or net loss as a measure of overall profitability. We may experience realized investment losses, which will affect future earnings levels since

our underlying business is long-term in nature and we need to earn the assumed interest rates in our liabilities.

A reconciliation of total operating revenue by segment to total consolidated revenue and total operating income by segment to

consolidated net income is as follows:

(in millions of dollars)

Operating Revenue by Segment

Net Realized Investment Gain (Loss)

Revenue

Operating Income by Segment

Net Realized Investment Gain (Loss)

Income Tax

Income from Discontinued Operations

Net Income

Year Ended December 31

2008

2007

2006

$10,448.2

$10,585.1

$10,533.1

(465.9)

(65.2)

$ 9,982.3

$10,519.9

$ 1,289.9

$ 1,062.4

(465.9)

270.8

—

(65.2)

324.8

6.9

2.2

$10,535.3

$ 463.2

2.2

61.8

7.4

$ 553.2

$ 679.3

$ 411.0

As previously noted, included in the before-tax operating income by segment shown above are before-tax charges of $53.0 million

and $411.4 million in 2007 and 2006, respectively, related to the claim reassessment process and $18.5 million in 2006 for the broker

compensation settlement. Also as previously discussed, operating revenue and operating income by segment would have been higher in

2008 by approximately $86.7 million and $24.2 million, respectively, and higher in 2006 by approximately $86.7 million and $21.3 million,

respectively, if the results for our U.K. operations had been translated at a constant exchange rate of 2.004, the rate for 2007.

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Unum US Segment

The Unum US segment includes group long-term and short-term disability insurance, group life and accidental death and dismemberment

(AD&D) products, and supplemental and voluntary lines of business. The supplemental and voluntary lines of business are comprised of recently

issued disability insurance, group and individual long-term care insurance, and voluntary benefits products. Effective with the fourth quarter of

2008, we made slight modifications to our reporting segments to better align the debt of our securitizations with our business segments. The

assets, non-recourse debt, and associated capital of Tailwind Holdings are now reported in our Unum US segment in the group disability line of

business. The primary effect on operating results from the movement of Tailwind Holdings to Unum US is the inclusion of interest and debt

expense associated with the Tailwind Holdings non-recourse debt. We also modified the investment income allocation on capital supporting

certain of our group disability and long-term care product lines within Unum US. Financial results previously reported have been revised to

reflect these reclassifications.

Unum US Operating Results

Shown below are financial results for the Unum US segment. In the sections following, financial results and key ratios are also presented

for the major lines of business within the segment.

(in millions of dollars)

Operating Revenue

Premium Income

Net Investment Income

Other Income

Total

Benefits and Expenses

Benefits and Change in Reserves for Future Benefits

Commissions

Interest and Debt Expense

Deferral of Acquisition Costs

Amortization of Deferred Acquisition Costs

Other Expenses

Total

Operating Income Before Income Tax and

Year Ended December 31

2008

% Change

2007

% Change

2006

$4,963.0

(1.0)%

$5,014.0

(3.5)%

$5,196.0

1,136.4

132.7

6,232.1

3,998.4

518.6

4.2

(329.7)

320.3

1,036.2

5,548.0

2.0

(2.1)

(0.5)

(5.8)

3.4

(44.0)

8.4

15.6

4.3

1,114.0

135.6

6,263.6

4,246.4

501.5

7.5

(304.2)

277.1

993.2

(3.0)

5,721.5

5.3

25.0

(1.5)

(10.6)

(0.7)

N.M.

(0.7)

(8.3)

(2.5)

(8.8)

1,057.5

108.5

6,362.0

4,752.1

505.2

1.3

(306.2)

302.2

1,018.7

6,273.3

Net Realized Investment Gains and Losses

$ 684.1

26.2

$ 542.1

N.M.

$ 88.7

N.M. = not a meaningful percentage

As previously discussed, included in operating income for Unum US are before-tax charges of $66.2 million and $364.2 million in 2007

and 2006, respectively, related to the claim reassessment process.

We adopted the provisions of SOP 05-1 effective January 1, 2007, and recorded a cumulative effect adjustment which decreased our

2007 opening balance of Unum US DAC $589.8 million. SOP 05-1 provides guidance on accounting for DAC on internal replacements and

effectively shortens the amortization period for DAC for many of our group products.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Year Ended December 31

2008

% Change

2007

% Change

2006

$190.3

7.1)%

$177.7

(14.8)%

$208.5

71.5

165.4

17.2

444.4

57.9

32.2

8.4

158.6

257.1

701.5

7.2

$708.7

10.5

23.4

24.6

13.9

(3.0)

(1.8)

(15.2)

14.6

6.8

11.2

—

11.0

64.7

134.0

13.8

390.2

59.7

32.8

9.9

138.4

240.8

631.0

7.2

$638.2

(12.7)

(10.5)

0.7

(12.5)

7.8

30.7

(10.0)

3.1

6.7

(6.1)

(47.4)

(6.9)

74.1

149.8

13.7

446.1

55.4

25.1

11.0

134.2

225.7

671.8

13.7

$685.5

$297.2

23.7)%

$240.3

0.6)%

$238.9

147.2

444.4

257.1

701.5

7.2

$708.7

(1.8)

13.9

6.8

11.2

—

11.0

149.9

390.2

240.8

631.0

(27.7)

(12.5)

6.7

(6.1)

7.2

(47.4)

207.2

446.1

225.7

671.8

13.7

$638.2

(6.9)

$685.5

Unum US Sales

(in millions of dollars)

Sales by Product

Fully Insured Products

Group Disability, Group Life, and AD&D

Group Long-term Disability

Group Short-term Disability

Group Life

AD&D

Subtotal

Supplemental and Voluntary

Individual Disability — Recently Issued

Group Long-term Care

Individual Long-term Care

Voluntary Benefits

Subtotal

Total Fully Insured Products

Administrative Services Only (ASO) Products

Total Sales

Sales by Market Sector

Group Disability, Group Life, and AD&D

Core Market (< 2,000 lives)

Large Case Market

Subtotal

Supplemental and Voluntary

Total Fully Insured Products

Administrative Services Only (ASO) Products

Total Sales

69081_2008AR_FIN.indd 49

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

Unum US sales increased 11.0 percent in 2008 compared to 2007. Our group core market segment, which we define for Unum US as

employee groups with less than 2,000 lives, had a sales increase of 23.7 percent over the prior year, and the number of new accounts increased

16.4 percent. We had a sales mix of approximately 67 percent core market and 33 percent large case market in 2008, in line with our targeted

60 percent core/40 percent large case market distribution mix. Our supplemental and voluntary sales increased 6.8 percent in 2008 compared

to last year, with a 14.6 percent increase in voluntary sales offsetting the expected decrease in sales of individual long-term care.

Sales in the group large case market segment declined 1.8 percent compared to the prior year. Sales for our individual disability line of

business, of which approximately 91.0 percent are in the multi-life market, decreased slightly during 2008 compared to 2007.

During 2009 we will continue to focus on our group core market segment, group long-term care, and voluntary products market,

as well as disciplined growth in our group large case and individual disability markets. In order to focus more completely on the group

long-term care market, we have decided to discontinue selling individual long-term care insurance on an active basis effective in 2009.

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006

While overall sales for Unum US declined in 2007 relative to 2006, we maintained our disciplined pricing and our sales mix was

generally in line with our target mix. In 2007, we had a sales mix of approximately 62 percent core market and 38 percent large case

market. Although sales on an annualized premium basis declined year over year in our group core market segment, the number of new

accounts in this segment increased over 2006.

Sales for our individual disability line of business increased over 2006. Long-term care sales were generally in line with our strategy

for this product line, with growth in the group product and a decline in sales for individual long-term care. Our voluntary benefits sales

increased in 2007 relative to 2006, consistent with our focus on sales growth in our voluntary product lines.

Because our focus for our 2007 renewal program was aimed primarily at improving the profitability of our large case group business,

sales and persistency for the large case market segment declined during 2007, as expected.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Unum US Group Disability Operating Results

Shown below are financial results and key performance indicators for Unum US group disability.

(in millions of dollars, except ratios)

2008

% Change

2007

% Change

2006

Year Ended December 31

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

2,043.9

Commissions

Interest and Debt Expense

Deferral of Acquisition Costs

Amortization of Deferred Acquisition Costs

Other Expenses

Total

Operating Income (Loss) Before Income Tax

165.9

4.2

(59.4)

76.7

572.4

2,803.7

$1,838.5

(3.0)%

$1,895.7

(2.9)%

$1,953.3

435.1

(10.4)

2,273.6

631.3

100.2

3,005.1

(4.5)

(2.7)

0.1

(4.0)

(10.3)

(1.1)

(44.0)

(1.7)

15.9

1.9

(7.2)

485.6

2,381.3

648.7

100.1

3,130.1

2,277.4

167.7

7.5

(60.4)

66.2

561.6

3,020.0

(8.4)

(4.1)

1.6

21.6

(2.3)

(15.7)

(4.6)

N.M.

(6.4)

(23.4)

(4.6)

(13.5)

530.2

2,483.5

638.5

82.3

3,204.3

2,702.5

175.8

1.3

(64.5)

86.4

588.7

3,490.2

and Net Realized Investment Gains and Losses

$ 201.4

82.9

$ 110.1

138.5

$ (285.9)

Operating Ratios (% of Premium Income):

Benefit Ratio (1)

Other Expense Ratio (2)

Before-tax Operating Income (Loss) Ratio (3)

Premium Persistency:

Group Long-term Disability

Group Short-term Disability

Case Persistency:

Group Long-term Disability

Group Short-term Disability

N.M. = not a meaningful percentage

89.9%

25.2%

8.9%

87.8%

82.1%

89.2%

88.2%

95.6%

23.6%

4.6%

85.1%

74.0%

88.4%

87.4%

108.8)%

23.7)%

(11.5)%

87.8)%

85.6)%

87.4)%

86.2)%

(1) Included in these ratios are charges of $76.5 million and $349.2 million in 2007 and 2006, respectively, related to the claim reassessment process. Excluding these

charges, the benefit ratios for 2007 and 2006 would have been 92.4% and 94.8%, respectively.

(2) Included in these ratios are increases (decreases) of $(10.3) million and $15.0 million in 2007 and 2006, respectively, related to the claim reassessment process. Excluding

these items, the other expense ratios for 2007 and 2006 would have been 24.0% and 23.1%, respectively.

(3) Included in these ratios are charges of $66.2 million and $364.2 million in 2007 and 2006, respectively, related to the claim reassessment process. Excluding these

charges, the before-tax operating income ratio for 2007 and 2006 would have been 7.4% and 3.2%, respectively.

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

Premium income for group disability decreased in 2008 relative to the prior year, as expected, due primarily to our pricing, renewal,

and risk selection strategy as well as the termination of one large case group in September 2007. However, premium persistency and case

persistency both improved over the prior year in both the core and large case markets, indicating that persistency for these lines is beginning

to stabilize as expected. Net investment income declined in 2008 in comparison to the prior year due primarily to a lower yield on assets

supporting this line of business resulting from the investment of new cash at a lower yield than that of the existing portfolio and also

due to a decrease in bond call premiums. The decline in yield and bond call premiums was partially offset by an increase in the level of

assets in the portfolio. Other income includes ASO fees of $64.8 million and $65.2 million for 2008 and 2007, respectively.

The benefit ratio for 2008 was lower than the benefit ratio for the prior year, excluding the 2007 revision to our estimate for the claim

reassessment costs, due primarily to a higher rate of claim recoveries in group long-term disability and lower paid claims in short-term

disability. Annual claim incidence rates for both group long-term and short-term disability are slightly lower than the prior year, with no

unusual trends noted by sector or by case size. An increase in incidence rates for group short-term disability generally precedes an

increase in long-term disability submitted incidence.

Interest and debt expense related to the debt issued by Tailwind Holdings decreased from the prior year due to a decrease in the

variable rate of interest during 2008 compared to 2007 and a decrease in the amount of outstanding debt resulting from principal payments

made during 2008 and 2007.

The deferral of acquisition costs was generally consistent with the prior year. Amortization was higher in 2008 relative to the prior year

due to an increase in amortization related to internal replacement transactions that result in a policy that is substantially changed. These

transactions are accounted for as an extinguishment of the original policy and the issuance of a new policy.

The other expense ratio increased in 2008 compared to the prior year due primarily to the decline in premium income and an increase

in policy maintenance expenses and product service and development costs. Also contributing to the increase in the other expense ratio

was the expense related to the broker compensation settlement previously discussed, of which $4.4 million was included in 2008 expenses

for group disability.

As discussed under “Cautionary Statement Regarding Forward-Looking Statements,” certain risks and uncertainties are inherent in

group disability business. Components of claims experience, including, but not limited to, incidence and recovery rates, may be worse

than we expect. Both economic and societal factors can affect claim incidence. Disability claim incidence and claim recovery rates may be

influenced by, among other factors, the rate of unemployment and consumer confidence. The relationship between these and other factors

and overall incidence is very complex and will vary due to contract design features and the degree of expertise within the insuring

organization to price, underwrite, and adjudicate the claims. Adjustments to reserve amounts may be required if there are changes in

assumptions regarding the incidence of claims or the rate of recovery, as well as persistency, mortality, and interest rates used in

calculating the reserve amounts. Within the group disability market, pricing and renewal actions can be taken to react to higher claim

rates. However, 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 not manifest themselves in claims experience for an extended period of time.

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006

Premium income for group disability decreased in 2007 relative to 2006 due primarily to our strategy on pricing, renewals, and risk

selection. Premium persistency and case persistency were both consistent with our expectations given our business mix strategy. Net

investment income increased in 2007 in comparison to 2006 due to the growth in the level of assets supporting these lines of business,

partially offset by the impact of the lower yield resulting from the lower interest rate environment and a decrease in bond call premiums.

Other income includes ASO fees of $65.2 million and $60.9 million for 2007 and 2006, respectively.

Excluding the revisions to our estimate for claim reassessment costs, the benefit ratio for 2007 was lower than the benefit ratio for

2006 due primarily to lower paid claims in both group long-term and short-term disability and a higher rate of claim recoveries relative to

2006. Our claim operational effectiveness continued to improve during 2007 as a result of our organizational and process changes.

Interest and debt expense in 2007 is related to the Tailwind Holdings debt that was issued in the fourth quarter of 2006.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

The net decrease in the amortization of DAC was due primarily to the decrease in the level of DAC as a result of the adoption of the new

accounting policy related to DAC on internal replacements, offset somewhat by higher amortization resulting from the shorter amortization

period for DAC. The other expense ratio, excluding the adjustments to our claim reassessment incremental operating expense estimate,

increased in 2007 compared to 2006 due to the decline in premium income as well as an increase in advertising and branding expenses

and product and service development costs.

Unum US Group Life and Accidental Death and Dismemberment Operating Results

Shown below are financial results and key performance indicators for Unum US group life and accidental death and dismemberment.

(in millions of dollars, except ratios)

2008

% Change

2007

% Change

2006

Year Ended December 31

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 Acquisition Costs

Amortization of Deferred Acquisition Costs

Other Expenses

Total

Operating Income Before Income Tax

$1,062.8

(4.0)%

$1,107.4

(11.3)%

$1,248.1

127.6

1,190.4

126.0

2.3

1,318.7

827.6

85.4

(40.3)

55.0

180.1

(2.6)

(3.9)

(6.6)

(4.2)

(4.1)

(8.2)

(3.7)

11.6

39.6

9.2

131.0

1,238.4

134.9

2.4

1,375.7

901.6

88.7

(36.1)

39.4

164.9

1,107.8

(4.4)

1,158.5

(13.6)

(11.5)

(4.5)

N.M.

(10.7)

(15.5)

(1.6)

(4.2)

(39.4)

(7.5)

(15.0)

151.6

1,399.7

141.3

—

1,541.0

1,067.3

90.1

(37.7)

65.0

178.3

1,363.0

and Net Realized Investment Gains and Losses

$ 210.9

(2.9)

$ 217.2

22.0

$ 178.0

Operating Ratios (% of Premium Income):

Benefit Ratio

Other Expense Ratio

Before-tax Operating Income Ratio

Premium Persistency:

Group Life

Accidental Death & Dismemberment

Case Persistency:

Group Life

Accidental Death & Dismemberment
N.M. = not a meaningful percentage

69.5%

15.1%

17.7%

83.8%

86.4%

89.1%

89.2%

72.8%

13.3%

17.5%

78.8%

80.8%

87.7%

88.0%

76.3%

12.7%

81.2%

82.8%

86.9%

87.0%

69081_2008AR_FIN.indd 53

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

Premium income for group life decreased in 2008 relative to the prior year due primarily to our pricing, renewal, and risk selection

strategy. Premium persistency and case persistency both improved in comparison to the prior year. The decrease in net investment

income relative to the prior year resulted from a decline in the level of assets supporting these lines of business and from a lower yield

on the portfolio due to the investment of new cash at a lower yield than that of the existing portfolio.

The benefit ratio decreased in 2008 due primarily to lower paid claim incidence rates for both group life and the accidental death and

dismemberment lines of business.

The deferral of acquisition costs increased in 2008 due primarily to increased sales in the group core market segment. Amortization

of deferred acquisition costs was higher in 2008 relative to the prior year due to an increase in amortization related to internal

replacement transactions.

The other expense ratio increased in 2008 in comparison to the prior year due primarily to the decline in premium income as well as

an increase in policy maintenance expenses and product and service development costs.

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006

Premium income for group life decreased in 2007 relative to 2006 due primarily to our more disciplined approach to pricing, renewals,

and risk selection. Premium persistency and case persistency were both consistent with our expectations. The decrease in net investment

income relative to 2006 resulted primarily from a decline in the level of assets supporting these lines of business.

The benefit ratio decreased in 2007 due primarily to a lower submitted and paid claim incidence rate for group life, offset partially

by higher paid claim incidence rates for the accidental death and dismemberment line of business.

Similar to our group disability products, amortization of DAC was lower in 2007 relative to 2006 due to the adoption of SOP 05-1.

The other expense ratio increased in 2007 in comparison to 2006 due to the decline in premium income.

69081_2008AR_FIN.indd 54

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Unum US Supplemental and Voluntary Operating Results

Shown below are financial results and key performance indicators for Unum US supplemental and voluntary product lines.

(in millions of dollars, except ratios)

2008

% Change

2007

% Change

2006

Year Ended December 31

Operating Revenue

Premium Income

Individual Disability — Recently Issued

$ 471.5

3.2)%

$ 456.7

4.2%

$ 438.5

Long-term Care

Voluntary Benefits

Total Premium Income

Net Investment Income

Other Income

Total

Benefits and Expenses

Benefits and Change in Reserves for Future Benefits

Commissions

Deferral of Acquisition Costs

Amortization of Deferred Acquisition Costs

Other Expenses

Total

Operating Income Before Income Tax

580.7

446.8

1,499.0

379.1

30.2

1,908.3

1,126.9

267.3

(230.0)

188.6

283.7

1,636.5

9.0

10.4

7.5

14.7

(8.8)

8.6

5.6

9.1

10.7

10.0

6.4

6.1

532.9

404.7

1,394.3

330.4

33.1

1,757.8

1,067.4

245.1

(207.7)

171.5

266.7

1,543.0

8.2

6.0

6.2

19.0

26.3

8.7

2.4

1.8

13.7

6.0

8.7

492.4

381.9

1,312.8

277.7

26.2

1,616.7

982.3

239.3

(204.0)

150.8

251.7

1,420.1

and Net Realized Investment Gains and Losses

$ 271.8

26.5

$ 214.8

9.3

$ 196.6

Operating Ratios (% of Premium Income):

Benefit Ratios

Individual Disability — Recently Issued

Long-term Care

Voluntary Benefits

Other Expense Ratio

Before-tax Operating Income Ratio

Interest-Adjusted Loss Ratios:

Individual Disability — Recently Issued

Long-term Care

Premium Persistency:

Individual Disability — Recently Issued

Long-term Care

Voluntary Benefits

53.3%

106.1%

58.0%

18.9%

18.1%

35.9%

75.5%

90.7%

95.5%

80.4%

56.7%

106.0%

60.1%

19.1%

15.4%

40.0%

77.7%

90.6%

95.4%

79.4%

58.0%

99.2%

62.7%

19.2%

15.0%

42.8%

73.1%

90.5%

95.3%

80.9%

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

The increase in premium income for 2008 relative to the prior year is due to sales growth in our supplemental and voluntary product

lines, the impact of premium rate increases implemented for individual long-term care, and overall stable persistency. Net investment income

increased relative to the prior year primarily from growth in the level of assets supporting these lines of business.

The decrease in the interest adjusted loss ratio for the individual disability — recently issued line of business for 2008 relative to the prior

year is due primarily to a decrease in paid incidence rates, partially offset by a lower claim recovery rate. The interest adjusted loss ratio

69081_2008AR_FIN.indd 55

3/26/09 12:02:06 PM

Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

for long-term care was lower in 2008 than in the prior year due primarily to higher premium income, partially offset by an increase in claim

incidence rates. The benefit ratio for voluntary benefits decreased in 2008 as compared to the prior year due primarily to a lower rate of paid

claim incidence for the disability line of business and a lower mortality rate for the life line of business.

The increase in commissions and the deferral and amortization of acquisition costs relative to the prior year is due primarily to growth

in these lines of business. The other expense ratio decreased slightly in comparison to the prior year due to a higher rate of premium growth

relative to expense growth.

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006

The increase in premium income for 2007 relative to 2006 is due to sales growth and overall stable persistency, although premium

persistency for certain of the product lines declined compared to 2006. Net investment income increased relative to 2006 primarily from

growth in the level of assets supporting these lines of business.

The interest adjusted loss ratio for the individual disability — recently issued business decreased in 2007 relative to 2006 due primarily

to a decrease in the submitted claim incidence rate as well as an increase in the claim recovery rate. The interest adjusted loss ratio for

long-term care was higher in 2007 than in 2006 due primarily to an increase in the submitted claim incidence rate and a decrease in the

claim recovery and mortality rates. The benefit ratio for voluntary benefits decreased in comparison to 2006 due primarily to a lower rate

of paid claim incidence for the voluntary benefits disability line of business partially offset by a higher mortality rate for the voluntary life

line of business.

The amortization of DAC increased in 2007 relative to 2006 due to the acceleration of amortization for certain of the product lines

with lower than anticipated persistency. The other expense ratio remained level with 2006 due to the growth in premium income and the

corresponding growth in operating expenses.

Segment Outlook

Throughout 2008 we focused on improvement in group disability profitability and growth in our core group market and our voluntary line

of business. We remained disciplined with pricing and risk selection, focusing on margin improvement and top-line growth in select markets.

During 2009, we will maintain our risk discipline and culture of operating effectiveness, with a focus on talent development across

our businesses. We will seek to continue to improve our financial performance, driven primarily by our group disability line, with greater

product diversification through our voluntary product growth. We will continue the expansion of our growth platform — our core group

market, group long-term care, and voluntary lines of business. Our growth strategy includes offering a broad selection of benefits which

provide cost predictability and stability over the long term for our clients through employee funding and defined employer contribution

programs. We will seek to leverage capabilities being developed in our growth platform with our large case clients. We will focus on

continued innovation for all of our customers and sales force, including the completion of our Simply Unum platform to be effective for

larger employers.

Periods of economic downturns have historically affected disability claim incidence rates and, to a lesser extent, disability claim

recovery rates in certain sectors of the market. The current downturn may lead to a similar pattern of claim incidence or recoveries. We have

previously taken steps to improve our risk profile. We have reduced our exposure to volatile business segments through diversification

by market size, product segment, and industry segment. We believe our claims management organization is positioned for stable and

sustainable performance levels. We experienced a slight increase in claim incidence levels during the fourth quarter of 2008, but not in any

particular market sector or case size. It is not determinable as to whether this increase is economically related. We may experience some

impact from the uncertain economic environment on premium growth due to unfavorable persistency of existing cases or lower sales,

particularly if customers elect to delay expansion of existing benefits in today’s environment or if there is a significant reduction in the

number of covered employees. We may also see some volatility in net investment income as a result of fluctuations in bond calls and other

types of miscellaneous net investment income. We continuously monitor key indicators to assess our risk to an economic slowdown or

recession and attempt to adjust our business plans accordingly.

69081_2008AR_FIN.indd 56

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Our outlook for 2009 reflects higher disability claims incidence from the weakening economy resulting in a generally flat benefit ratio

for group disability on a quarterly basis, though improved on a full year comparison with 2008. We expect continued growth in our voluntary

and supplemental lines of business and flat operating results relative to 2008 for our group life and accidental death and dismemberment

line of business.

Unum UK Segment

Unum UK includes insurance for group long-term disability, group life, and individual disability products sold primarily in the United

Kingdom through field sales personnel and independent brokers and consultants. Effective with the fourth quarter of 2008, we made

slight modifications to our Unum UK segment to align the allocation of capital for Unum UK similar to that of Unum US and Colonial Life.

We transferred excess assets, capital in excess of target, and the associated investment income from Unum UK to our Corporate and

Other segment. Financial results previously reported have been revised to reflect these reclassifications.

Operating Results

Shown below are financial results and key performance indicators for the Unum UK segment.

(in millions of dollars, except ratios)

2008

% Change

2007

% Change

2006

Year Ended December 31

Operating Revenue

Premium Income

Group Long-term Disability

$ 675.9

(10.2)%

$ 752.6

17.8)%

$ 638.9

Group Life

Individual Disability

Total Premium Income

Net Investment Income

Other Income

Total

Benefits and Expenses

Benefits and Change in Reserves for Future Benefits

Commissions

Deferral of Acquisition Costs

Amortization of Deferred Acquisition Costs

Other Expenses

Total

Operating Income Before Income Tax

174.6

38.8

889.3

181.9

2.0

1,073.2

511.4

59.0

(37.4)

32.4

183.8

749.2

(1.6)

1.3

(8.2)

(2.9)

(35.5)

(7.4)

(11.0)

(11.9)

(9.2)

(34.4)

0.2

(10.1)

177.4

38.3

968.3

187.4

3.1

1,158.8

574.3

67.0

(41.2)

49.4

183.5

833.0

3.7

16.4

14.9

10.2

N.M.

14.4

3.8

34.8

19.8

54.4

15.5

9.6

171.0

32.9

842.8

170.1

0.1

1,013.0

553.5

49.7

(34.4)

32.0

158.9

759.7

and Net Realized Investment Gains and Losses

$ 324.0

(0.6)

$ 325.8

28.6

$ 253.3

Operating Ratios (% of Premium Income):

Benefit Ratio

Other Expense Ratio

Before-tax Operating Income Ratio

Premium Persistency:

Group Long-term Disability

Group Life

Individual Disability
N.M. = not a meaningful percentage

57.5%

20.7%

36.4%

87.4%

74.9%

87.6%

59.3%

19.0%

33.6%

88.0%

70.5%

89.4%

65.7%

18.9%

30.1%

90.4%

69.1%

88.2%

69081_2008AR_FIN.indd 57

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Foreign Currency Translation

The functional currency of Unum UK is the British pound sterling. Unum UK’s premiums, net investment income, claims, and expenses

are received or paid in pounds, and we hold pound denominated assets to support Unum UK’s pound denominated policy reserves and

liabilities. We translate Unum UK’s pound-denominated financial statement items into dollars for our consolidated financial reporting. We

translate income statement items using an average exchange rate for the reporting period, and we translate balance sheet items using the

exchange rate at the end of the period. We report unrealized foreign currency translation gains and losses in accumulated other comprehensive

income in our consolidated balance sheets.

Fluctuations in the pound to dollar exchange rate have an effect on Unum UK’s reported financial results and our consolidated financial

results. In periods when the pound weakens, as occurred during the last half of 2008 relative to 2007, translating pounds into dollars

decreases current year results relative to the prior year. In periods when the pound strengthens, translating into dollars increases current

year results in relation to the prior year, as was the case in 2007 compared to 2006.

(in millions of pounds, except ratios)

2008

% Change

2007

% Change

2006

Year Ended December 31

Operating Revenue

Premium Income

Group Long-term Disability

£364.4

(3.1)%

£375.9

8.5)%

£346.3

Group Life

Individual Disability

Total Premium Income

Net Investment Income

Other Income

Total

Benefits and Expenses

Benefits and Change in Reserves for Future Benefits

Commissions

Deferral of Acquisition Costs

Amortization of Deferred Acquisition Costs

Other Expenses

Total

Operating Income Before Income Tax

and Net Realized Investment Gains and Losses

Weighted Average Pound/Dollar Exchange Rate
N.M. = not a meaningful percentage

93.3

20.9

478.6

98.5

1.2

578.3

275.8

31.9

(20.1)

17.9

99.6

405.1

£173.2

1.871

5.4

9.4

(1.0)

5.3

(25.0)

(0.1)

(3.8)

(4.8)

(2.4)

(27.5)

8.7

(2.6)

88.5

19.1

483.5

93.5

1.6

578.6

286.8

33.5

(20.6)

24.7

91.6

416.0

(4.2)

7.3

5.9

1.5

N.M.

5.5

(4.5)

24.1

10.2

44.4

6.4

1.0

6.5

£162.6

18.8

2.004

92.4

17.8

456.5

92.1

—

548.6

300.2

27.0

(18.7)

17.1

86.1

411.7

£136.9

1.851

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

Premium income decreased in 2008 relative to the prior year due primarily to a decline in group long-term disability resulting from

lower persistency levels and lower sales. This decline was partially offset by increases in premium income for group life due to higher sales

and improved persistency and to individual disability due to the continued growth in the in-force block from higher levels of sales during

2008 and 2007. A decrease in group life ceded premiums as a result of a modification, in the fourth quarter of 2007, of a quota share

reinsurance arrangement relating to new group life sales also contributed to the increase in group life premiums. Net investment income

increased in 2008 relative to the prior year due primarily to the growth in the level of assets supporting these lines of business and a higher

yield on the portfolio due to the investment of new cash at a higher yield than that of the existing portfolio.

69081_2008AR_FIN.indd 58

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

The lower benefit ratio in 2008 in comparison to the prior year was primarily due to an increased rate of claim recoveries for group

long-term disability. Also included in 2008 and 2007 results are adjustments to our long-term assumptions for claim reserves due to

emerging experience and our view of future events, which increased operating income approximately £5.5 million and £8.2 million in

2008 and 2007, respectively.

The decrease in amortization of acquisition costs in 2008 relative to the prior year is due primarily to a decrease in amortization related

to internal replacement transactions that result in a policy that is substantially changed. These transactions are accounted for as an

extinguishment of the original policy and the issuance of a new policy.

The other expense ratio increased during 2008 in comparison with the prior year due primarily to expenses of £4.4 million related to

the implementation of a disciplined cost management process during the fourth quarter of 2008 that is intended to reduce our operating

expenses in the future by implementing expense efficiencies and aligning expenses with premium growth.

During 2008, Unum UK became responsible for the ongoing administration and management of a closed block of group long-term

disability claims through a reinsurance arrangement with Royal London Mutual Insurance Society Limited. At the time of the transaction,

Unum UK received cash of £24.5 million, recorded £0.4 million in accrued premiums receivable, assumed reserves of £22.2 million, and

recorded a deferred gain of £2.7 million. The transaction is not expected to materially impact operating results.

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006

Premium income increased in 2007 relative to 2006 due primarily to sales of group and individual disability products and stable

persistency for those two lines of business, partially offset by lower sales for group life and continued lower persistency relative to the

levels of 2005 and early 2006. Net investment income increased in 2007 relative to 2006 due to continued growth in the business and

the assets supporting the lines of business and an increase in portfolio yields.

The lower benefit ratio in 2007 in comparison to 2006 was primarily the result of an adjustment to our long-term assumptions for

claim reserves due to emerging experience and our view of future events, which increased 2007 segment operating income approximately

£8.2 million. Also contributing to a lower benefit ratio for 2007 was a lower rate of claim incidence for both group long-term disability and

group life, partially offset by lower claim recoveries for group long-term disability.

Commissions increased in 2007 relative to 2006 primarily because of a higher portion of long-term disability business sold and

renewed in 2007 on which a commission is paid. Amortization of DAC increased in 2007 due to the shorter amortization period for DAC

resulting from the adoption of SOP 05-1 effective January 1, 2007. The amount of the cumulative effect adjustment decreased the 2007

opening balance of Unum UK DAC approximately £45.1 million, or $88.3 million, which resulted in decreased amortization because of the

lower deferred asset level. However, the timing of policy renewals occurring during 2007 resulted in increased amortization, causing an

overall net increase in expense for 2007. The other expense ratio remained consistent with 2006 due to our continued focus on expense

management and the growth in premium income.

Sales

Shown below are sales results in dollars and in pounds for the Unum UK segment.

(in millions)

Group Long-term Disability

Group Life

Individual Disability

Total Sales

Group Long-term Disability

Group Life

Individual Disability

Total Sales

Year Ended December 31

2008

% Change

2007

% Change

2006

$72.7

19.6

7.2

$99.5

£39.7

10.9

3.9

£54.5

(13.9)%

$ 84.4

6.7)%

$ 79.1

48.5

(7.7)

(5.6)

13.2

7.8

$105.4

(20.0)

41.8

4.3

(5.7)%

£ 42.1

—)%

65.2

—

3.6

6.6

3.9

£ 52.6

(26.7)

30.0

(2.8)

16.5

5.5

$101.1

£ 42.1

9.0

3.0

£ 54.1

69081_2008AR_FIN.indd 59

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Sales in Unum UK increased in 2008 primarily due to growth in group life sales offset partially by a decrease in sales for group long-term

disability. Continued aggressive competition in the U.K. market is unfavorably affecting sales in all product lines. In the U.K., legislative changes

that removed discrimination by employers on the basis of age, therefore encouraging the extension of insurance coverage, became effective

in October 2006. During 2007, Unum UK took advantage of the opportunities offered by age equality legislation, with £7.4 million of additional

sales during 2007 compared to only £2.0 million in 2008. Excluding sales related to the change in age equality legislation, Unum UK achieved

underlying sales growth of approximately 16 percent in 2008 as compared to the prior year.

Sales in 2007 declined slightly from 2006. Sales in the U.K. market were negatively impacted during 2006 by lower employee

benefits purchase decisions caused by distraction in the U.K. employee benefits market due to changes in pension legislation. Sales

related to the change in age equality legislation were £7.4 million during 2007 compared to £11.1 million during 2006. Excluding sales

related to the change in age equality legislation, Unum UK achieved underlying sales growth of approximately 5 percent in 2007 as

compared to 2006.

Segment Outlook

During 2008, we focused on continued profitable sales growth and improvement in our premium persistency. We will continue this

focus in 2009, as we seek to achieve sustainable and profitable growth through disciplined pricing, premium persistency, risk selection, and

claims management. We expect to maintain our strong leadership position in the U.K., but in the current competitive market we have a cautious

outlook for premium growth. We are exploring additional market opportunities to expand our growth in the group market through new

product offerings. We continue to make progress on our initiative to provide the U.K. market with industry leading services, processes,

systems, and operational capability.

Regarding the current economic downturn, as of year end 2008 we had not yet experienced any significant deterioration in disability

claims incidence or claim recoveries. The more likely impact of a softer economic environment is on premium growth, which could be

further impacted by a prolonged competitive pricing environment. We continuously monitor key indicators to assess our risk to an economic

slowdown or recession and attempt to adjust our business plans accordingly. Fluctuations in the U.S. dollar relative to the British pound

sterling, as occurred during the last half of 2008, impact our reported operating results. We expect that our 2009 results, when translated

into dollars for consolidated reporting, will compare unfavorably to 2008 due to the weakening of the pound.

Our outlook for 2009 is for the continuance of high levels of profitability, in local currency, despite the weaker economy. We expect

our profit margins will continue to be strong as we invest in new growth opportunities. We completed an in-depth analysis of our expense

efficiency and alignment to premium growth in 2008, and we believe the implementation of the resulting disciplined cost management

process will reduce our operating expenses relative to premium income in 2009.

69081_2008AR_FIN.indd 60

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Colonial Life Segment

The Colonial Life segment includes insurance for accident, sickness, and disability products, life products, and cancer and critical illness

products issued primarily by Colonial Life & Accident Insurance Company and marketed to employees at the workplace through an agency

sales force and brokers.

Operating Results

Shown below are financial results and key performance indicators for the Colonial Life segment.

(in millions of dollars, except ratios)

2008

% Change

2007

% Change

2006

Year Ended December 31

Operating Revenue

Premium Income

Accident, Sickness, and Disability

$ 606.9

7.1)%

$ 566.6

6.2)%

$ 533.3

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 of Acquisition Costs

Amortization of Deferred Acquisition Costs

Other Expenses

Total

Operating Income Before Income Tax

157.4

213.0

977.3

105.7

0.4

1,083.4

464.0

211.8

(223.8)

166.4

196.9

815.3

9.7

8.1

7.7

5.8

(55.6)

7.5

6.0

5.1

6.1

8.1

9.5

7.0

143.5

197.1

907.2

99.9

0.9

10.0

10.5

7.7

6.7

(18.2)

1,008.0

7.6

437.8

201.6

(210.9)

153.9

179.8

762.2

(0.8)

9.0

12.4

6.6

16.0

3.3

130.5

178.3

842.1

93.6

1.1

936.8

441.4

184.9

(187.6)

144.4

155.0

738.1

and Net Realized Investment Gains and Losses

$ 268.1

9.1

$ 245.8

23.7

$ 198.7

Operating Ratios (% of Premium Income):

Benefit Ratio

Other Expense Ratio

Before-tax Operating Income Ratio

Premium Persistency:

Accident, Sickness, and Disability

Life

Cancer and Critical Illness

47.5%

20.1%

27.4%

75.8%

84.7%

84.0%

48.3%

19.8%

27.1%

75.9%

83.8%

84.1%

52.4%

18.4%

23.6%

74.9%

84.2%

82.3%

69081_2008AR_FIN.indd 61

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

Growth in premium income for 2008 compared to the prior year was attributable primarily to current and prior period sales and

stable persistency. Net investment income increased in 2008 in comparison to the prior year due primarily to growth in the level of assets

supporting these lines of business and a higher yield on the portfolio due to the investment of new cash at a higher yield than that of the

existing portfolio.

The benefit ratio for this segment decreased in 2008 in comparison to the prior year due primarily to favorable risk experience in the

accident, sickness, and disability line of business, offset somewhat by higher benefit ratios in the life and cancer and critical illness lines of

business. The improvement in the accident, sickness, and disability line of business resulted from the continued favorable experience related

to several new products introduced between 2002 and 2004. The life line of business benefit ratio was higher in 2008 relative to the prior

year due to a higher level of death claims and a higher average claim cost. The cancer and critical illness product line reported a higher

benefit ratio in 2008 relative to the prior year due primarily to unfavorable claim experience associated with the older cancer products.

Although we continue to focus on expense management, the other expense ratio for 2008 increased in comparison to the prior year

due primarily to field expansion and development.

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006

Growth in premium income was attributable primarily to current and prior period sales growth and stable persistency. Net investment

income increased in 2007 in comparison to 2006 due primarily to growth in the level of assets supporting these lines of business.

The benefit ratio for this segment decreased in 2007 in comparison to 2006 due primarily to favorable risk experience in the accident,

sickness, and disability line of business as well as the life line of business. The improvement in the accident, sickness, and disability line of

business resulted from the favorable experience related to several new products introduced between 2002 and 2004. In addition, individual

short-term disability claim incidence and average claim duration decreased in 2007 compared to 2006, while the average claim payment

was higher in 2007 relative to 2006. For accident products, the claim incidence rate decreased in 2007 compared to 2006, while the

average claim payment remained constant in 2007 relative to 2006. The life line of business reported a decrease in the rate of incurred

claims for 2007, although the aggregate claim expense increased due to the larger block of business. The cancer and critical illness product

line also reported a slightly lower benefit ratio in 2007 relative to 2006.

The other expense ratio for 2007 increased in comparison to 2006 due primarily to our investment in brand and product promotion

and the development of additional product offerings. Also, during 2006 we reported a one-time adjustment to commissions and

operating expenses that increased reported commissions and reduced other expenses for that year.

Sales

(in millions of dollars)

2008

% Change

2007

% Change

Accident, Sickness, and Disability

$222.1

5.1)%

$211.3

8.7%

Year Ended December 31

Life

Cancer and Critical Illness

Total Sales

64.0

54.1

$340.2

(4.0)

(4.9)

1.6

66.7

56.9

$334.9

0.2

5.2

6.3

2006

$194.4

66.6

54.1

$315.1

Colonial Life’s 2008 sales increased in the commercial market segment for employee groups with less than 100 lives as compared to

2007 sales levels. Partially offsetting this increase was a decrease in sales in the commercial market segment for employee groups with

greater than 100 lives and a decrease in the public sector markets for state and federal governments. The number of new accounts and

the new account annualized sales premium per case sold both increased over the prior year.

Sales in 2007 increased in comparison to 2006 primarily due to sales increases in the public sector market for educators and in the

commercial market segment for employee groups withless than 100 lives. Also contributing to the sales increase was an increase in the

number of new accounts over the prior year, offset partially by a decrease in the average new case size, which resulted in lower annualized

premium per case sold.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Segment Outlook

Throughout 2008, we focused on sales and distribution growth by accelerating recruiting and development, capitalizing on sales

opportunities where we have less market share, and assessing emerging distribution opportunities.

During 2009, we will seek to continue to expand our distribution through recruiting, development, and training programs. We intend

to focus our marketing resources on both existing accounts and new employers to maintain our in-force premium and generate sales

opportunities. We believe sales and premium growth will be driven by the growth and productivity of our agency sales system, as well as

continued product and brand development. We will also continue our collaboration with our Unum US business partners for marketing and

product development opportunities.

Periods of economic downturns have historically had minimal impact on the operations of Colonial Life, due primarily to a diversified

product portfolio that is designed with short duration, indemnity benefits. As of year end 2008, we had not experienced an increase in

claim incidence levels, on a seasonally adjusted basis, in the aggregate or in any particular market sector. We expect to experience some near

term impact on sales and premium growth if current economic conditions affect the buying patterns of employees or cause employers to

defer introduction of new plans. We continuously monitor key indicators to assess our risk to an economic slowdown or recession and attempt

to adjust our business plans accordingly.

Our outlook for 2009 is for the continuance of high levels of profitability in this segment, but with margins decreasing modestly over

time as the benefit ratio returns to more historic levels. Premium growth in 2009 is expected to be slightly less than 2008 due to slower

sales trends.

Individual Disability — Closed Block Segment

The Individual Disability — Closed Block segment generally consists of those individual disability policies in force before the substantial

changes in product offerings, pricing, distribution, and underwriting, which generally occurred during the period 1994 through 1998. A small

amount of new business continued to be sold after these changes, but we stopped selling new policies in this segment at the beginning of

2004 other than update features contractually allowable on existing policies. As previously discussed, effective with the fourth quarter of

2008, we reclassified the assets, non-recourse debt, and associated capital of Northwind Holdings from our former Corporate segment to the

Individual Disability — Closed Block segment. The primary effect on operating results from the movement of Northwind Holdings to the

Individual Disability — Closed Block segment is the inclusion of interest and debt expense associated with the Northwind Holdings non-

recourse debt.

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Operating Results

Shown below are financial results and key performance indicators for the Individual Disability — Closed Block segment.

(in millions of dollars, except ratios)

2008

% Change

2007

% Change

2006

Year Ended December 31

Operating Revenue

Premium Income

Net Investment Income

Other Income

Total

Benefits and Expenses

Benefits and Change in Reserves for Future Benefits

Commissions

Interest and Debt Expense

Other Expenses

Total

Operating Income Before Income Tax

$ 952.3

(5.7)%

$1,009.9

(5.0)%

$1,062.8

767.5

98.6

1,818.4

1,544.8

62.7

35.1

148.1

1,790.7

(7.3)

(4.9)

(6.3)

(4.3)

(9.3)

N.M.

5.9

(2.2)

827.6

103.7

1,941.2

1,614.5

69.1

8.3

139.8

(0.1)

(1.3)

(2.8)

(5.6)

(9.3)

N.M.

0.3

828.7

105.1

1,996.6

1,709.7

76.2

—

139.4

1,831.7

(4.9)

1,925.3

and Net Realized Investment Gains and Losses

$ 27.7

(74.7)

$ 109.5

53.6

$ 71.3

Interest Adjusted Loss Ratio (1)

Operating Ratios (% of Premium Income):

Other Expense Ratio (2)

Before-tax Operating Income Ratio (3)

Premium Persistency

N.M. = not a meaningful percentage

82.2%

15.6%

2.9%

93.8%

84.1%

13.8%

10.8%

94.3%

90.5%

13.1%

6.7%

94.4%

(1) Included in these ratios are charges (credits) of $(10.7) million and $47.2 million in 2007 and 2006, respectively, related to the claim reassessment process. Excluding

these charges and credits, the interest adjusted loss ratio for 2007 and 2006 would have been 85.2% and 86.1%, respectively.

(2) Included in this ratio is a decrease of $2.5 million in 2007 related to the claim reassessment process. Excluding this item, the other expense ratio for 2007 would have

been 14.1%.

(3) Included in these ratios are charges (credits) of $(13.2) million and $47.2 million in 2007 and 2006, respectively, related to the claim reassessment process. Excluding

these charges and credits, the before-tax operating income ratio for 2007 and 2006 would have been 9.5% and 11.1%, respectively.

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

The decrease in premium income for 2008 relative to the prior year is due to the expected run-off of this block of closed business due

to persistency and policy maturities. Net investment income decreased in 2008 compared to the prior year due to a decrease in bond call

premiums, a lower level of assets supporting this closed block of business, and a decline in the portfolio yield for this segment. During the

fourth quarter of 2007, we entered into an intercompany reinsurance transaction which allowed us to release excess statutory capital

previously supporting this reinsured closed block of business. As a result, the capital allocated to our Individual Disability — Closed Block

segment declined, with a resulting decrease in net investment income due to the lower asset levels needed to support allocated capital.

Because this is an intercompany reinsurance arrangement, reported results remain unchanged for this segment other than the lower net

investment income.

Other income includes the underlying results of certain blocks of reinsured business, including the net investment income of portfolios

held by those ceding companies to support the block we have reinsured. The net investment income for those blocks of reinsured business

also declined relative to prior years, primarily due to a lower level of assets.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Interest and debt expense is related to the Northwind Holdings debt issued in the fourth quarter of 2007.

The interest adjusted loss ratio was lower in 2008 compared to the prior year, excluding the decrease in our claim reassessment

reserve estimate, due primarily to lower average size of new claims and fewer reopened claims.

The other expense ratio is higher for 2008 relative to the prior year due to a $4.7 million litigation settlement as well as higher legal

fees related to two pending cases.

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006

The decrease in premium income for 2007 relative to 2006 is due to the expected decline in this block of closed business, as well as an

adjustment to premium income for a small block of ceded business for which the contract was modified during 2007. Partially offsetting

these declines is an increase in premium income due to the 2007 reinsurance recapture, in the third quarter of 2007, of a small block of

business, with an effective date of January 1, 2007, and annualized premium income of approximately $7.0 million. Neither the contract

modification nor the recapture had a material effect on operating results for this segment.

Net investment income decreased slightly in 2007 compared to 2006 due to a decrease in the level of assets supporting this business

and the decline in the portfolio yield rate. The lower asset levels were primarily the result of the previously discussed intercompany reinsurance

arrangement which lowered the statutory capital requirements for the reinsured block of business.

The interest adjusted loss ratio was lower in 2007 than the ratio for 2006, excluding the revisions to the claim reassessment reserve

estimate noted previously, due primarily to a higher rate of claim recoveries and a lower rate of submitted claims.

Segment Outlook

As a result of the decline in capital allocated to this segment, net investment income has decreased in 2008 relative to 2007 due to

the lower asset levels needed to support allocated capital. Net investment income was also negatively impacted in 2008 by a reduced

level of bond call premiums, relative to recent historical experience, as a result of the volatile capital market conditions and uncertain

economic environment, and it is likely that this trend may continue in 2009.

We also expect that operating revenue and income will decline over time as this closed block of business winds down. We believe

that the interest adjusted loss ratio for this block of business will be relatively flat over the long term, but the segment may experience

quarterly volatility. Claim resolution rates are very sensitive to operational and environmental changes and can be volatile over short

periods of time. 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. It is possible, however, that

variability in our reserve assumptions could result in a material impact on our reserve levels.

Corporate and Other Segment

As previously discussed, effective with the fourth quarter of 2008, we aggregated our former Other segment and Corporate segment

into one reporting segment. Subsequent to that aggregation, additional modifications to the reporting segment included the transfer of

assets, non-recourse debt, and associated capital of Tailwind Holdings and Northwind Holdings out of Corporate and Other into Unum US

and Individual Disability — Closed Block, respectively, and the transfer of excess assets, capital, and the associated investment income from

Unum UK into Corporate and Other. Financial results previously reported have been revised to reflect these reclassifications.

The Corporate and Other segment includes investment income on corporate assets not specifically allocated to a line of business,

interest expense on corporate debt other than non-recourse debt, and certain other corporate income and expense not allocated to a line

of business. Corporate and Other also includes results from certain Unum US insurance products not actively marketed, including individual

life and corporate-owned life insurance, reinsurance pools and management operations, group pension, health insurance, and individual

annuities. We expect operating revenue and income resulting from these insurance products to decline over time as these business lines

wind down.

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Operating Results

(in millions of dollars)

Operating Revenue

Premium Income

Net Investment Income

Other Income

Total

Benefits and Expenses

Benefits and Change in Reserves for Future Benefits

Commissions

Interest and Debt Expense

Other Expenses

Total

Operating Loss Before Income Tax

Year Ended December 31

2008

% Change

2007

% Change

2006

$ 1.4

197.5

42.2

241.1

107.8

1.2

117.4

28.7

255.1

(17.6)%

$ 1.7

(62.2)%

$ 4.5

9.1

37.0

12.9

(6.4)

(36.8)

(48.1)

(7.7)

(31.8)

181.0

30.8

213.5

115.2

1.9

226.1

31.1

374.3

6.0

(37.8)

(5.0)

(4.4)

(36.7)

4.5

(7.7)

0.2

170.7

49.5

224.7

120.5

3.0

216.3

33.7

373.5

and Net Realized Investment Gains and Losses

$(14.0)

91.3

$(160.8)

(8.1)

$(148.8)

Non-Insurance Product Results

Operating revenue was $106.0 million in 2008 compared to $74.9 million and $73.2 million in 2007 and 2006, respectively. Operating

losses were $30.6 million in 2008 compared to $178.3 million and $173.2 million in 2007 and 2006, respectively.

The increase in operating revenue in 2008 compared to the prior years is due primarily to an increase in net investment income resulting

from higher asset levels and $7.6 million of other income received during 2008 related to a refund of interest primarily attributable to tax

years 1986 through 1996.

Interest and debt expense, excluding the costs related to early retirement of debt, was $117.0 million in 2008 compared to $167.3 million

and $190.5 million in 2007 and 2006, respectively. Interest expense declined in 2008 relative to the prior two years due to the replacement,

in the fourth quarter of 2007, of older fixed rate debt held in Corporate and Other with non-recourse debt issued in conjunction with the

securitization of our closed block of individual disability reserves and held in the Individual Disability — Closed Block segment. Interest

expense was lower in 2007 relative to 2006 due to the reduction in our outstanding debt year over year.

Costs related to the early retirement of debt were $0.4 million, $58.8 million, and $25.8 million in 2008, 2007, and 2006, respectively.

See “Debt” contained herein for further discussion.

Included in other expenses is a securities litigation settlement accrual of $11.6 million in 2007 and broker compensation settlement

expenses of $18.5 million in 2006.

Insurance Product Results

Reinsurance Pools and Management

Our reinsurance operations include the reinsurance management operations of Duncanson & Holt, Inc. and the risk assumption, which

includes reinsurance pool participation; direct reinsurance, which includes accident and health, long-term care, and long-term disability

coverages; and Lloyd’s of London syndicate participations. During 2008, this line of business reported an operating loss of $7.7 million

compared to operating losses of $6.0 million and $6.7 million in 2007 and 2006, respectively.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Individual Life and Corporate-Owned Life

During 2000, we reinsured substantially all of the individual life and corporate-owned life insurance blocks of business and ceded

approximately $3.3 billion of reserves to the reinsurer. The $388.2 million before-tax gain on these transactions was deferred and is being

amortized into income based upon expected future premium income on the traditional insurance policies ceded and estimated future gross

profits on the interest-sensitive insurance policies ceded. A portion of the ceded corporate-owned life insurance block of business surrendered

during 2007. The termination of this fully ceded business had no impact on our operating results and will not materially affect the amortization

of the deferred gain.

Total operating revenue for individual life and corporate-owned life insurance was $32.3 million, $29.4 million, and $37.8 million in 2008,

2007, and 2006, respectively. Operating income for the same periods was $26.2 million, $26.8 million, and $33.0 million.

Other

Group pension, health insurance, individual annuities, and other closed lines of business had combined operating revenue of $97.3 million

in 2008 and $103.6 million in both 2007 and 2006. These closed lines of business had combined operating losses of $1.9 million, $3.3 million,

and $1.9 million in 2008, 2007, and 2006, respectively.

Segment Outlook

Specific defaults within our investment portfolio are unforeseeable. We have tested whether our capital plan for 2009 has sufficient

cushion to absorb possible losses. Because we currently have a margin of excess holding company liquidity and statutory capital above our

capital management target guidelines, we believe we are well positioned for the economic downturn. It is possible, however, that defaults

in our investment portfolio will result in realized investment losses, reduced net investment income, and lower statutory capital. Depending on

the magnitude of defaults, we may need to seek additional external financing above the level anticipated in our current capital outlook.

As previously noted, we expect our 2009 pension costs to be approximately $42.5 million higher than the level of 2008. This

increase in expense will be charged to our Corporate and Other segment.

Discontinued Operations

During the first quarter of 2007, we completed the sale of GENEX and recognized an after-tax gain on the transaction of approximately

$6.2 million. This gain is included with income from discontinued operations in our statements of income. Also included in discontinued

operations is after-tax income for GENEX of $0.7 million and $7.4 million in 2007 and 2006, respectively. See Note 2 of the “Notes to

Consolidated Financial Statements” for additional information.

Investments

Overview

We believe that our investment portfolio, which consists primarily of fixed income securities, is positioned to moderate the potential

impact of an economic slowdown on our financial position or operating results. Our portfolio is well diversified by type of investment and

industry sector. Over the past few years, we have actively reduced our exposure to below-investment-grade fixed maturity securities,

although additional downgrades may occur during an economic slowdown. We have established an investment strategy that we believe will

provide for adequate cash flows from operations and allow us to hold our securities through periods where significant decreases in fair value

occur. We have no exposure to subprime mortgages, “Alt-A” loans, or collateralized debt obligations in our asset-backed or mortgage-backed

securities portfolios. At December 31, 2008, we held $20.4 million fair value ($20.6 million amortized cost) of collateralized debt obligations

within our public bond portfolio. We had $148.3 million fair value ($170.2 million amortized cost) of exposure to investments for which the

payment of interest and principal is guaranteed under a financial guaranty insurance policy. The weighted average rating of the underlying

69081_2008AR_FIN.indd 67

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

securities, absent the guaranty insurance policy, is A1. We held $302.7 million fair value ($496.1 million amortized cost) of perpetual debentures,

or “hybrid” securities, that generally have no fixed maturity date. Interest on these securities due on any payment date may be deferred by

the issuer. The interest payments are generally deferrable only to the extent that the issuer has suspended dividends or other distributions or

payments to any of its shareholders or any other perpetual debt instrument.

Below is a summary of our formal investment policy, including the overall quality and diversification objectives.

• The majority of investments are in high quality publicly traded securities to ensure the desired liquidity and preserve the capital value

of our portfolios.

• The long-term nature of our insurance liabilities also allows us to invest in less liquid investments to obtain superior returns. A maximum

of 10 percent of the total investment portfolio may be invested in below-investment-grade securities, 2 percent in equity type

instruments, up to 35 percent in private placements, and 5 percent in commercial mortgage loans. The remaining assets can be held in

publicly traded investment-grade corporate securities, mortgage-backed securities, bank loans, asset-backed securities, government

and government agencies, and municipal securities.

• We intend to manage the risk of losses due to changes in interest rates by matching asset duration with liabilities, in the aggregate,

to within a range of +/- ten percent of the liability duration.

• The weighted average credit quality rating of the portfolio should be BBB or higher.

• The maximum investment per issuer group is limited based on internal limits reviewed by the finance committee of Unum Group’s

board of directors and approved by the boards of directors of our insurance subsidiaries and is more restrictive than the five percent

limit generally allowed by the state insurance departments which regulate the type of investments our insurance subsidiaries are

allowed to own. These internal limits are as follows:

Rating

AAA/A

BBB+

BBB

BBB-

BB+

BB/BB-

Internal Limit

($ in millions)

$150

125

100

• The portfolio is to be diversified across industry classification and geographic lines.

• Derivative instruments may be used to hedge interest rate risk and foreign currency risk and match liability duration and cash flows

consistent with the plan reviewed by the finance committee of Unum Group’s board of directors and approved by the boards of

directors of our insurance subsidiaries.

• Asset mix guidelines and limits are established by us, reviewed by the finance committee of Unum Group’s board of directors,

and approved by the boards of directors of our insurance subsidiaries.

• The allocation of assets and the selection and timing of the acquisition and disposition of investments are subject to ratification, on

a weekly basis, by an investment subcommittee appointed by the boards of directors of our insurance subsidiaries. These actions

are also reviewed by the 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 recommend adjustments,

as appropriate. Any revisions are reviewed by the finance committee of Unum Group’s board of directors and must be approved by

the boards of directors of our insurance subsidiaries.

See “Critical Accounting Estimates” contained herein for further discussion of our valuation of investments.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Investment Results

Net investment income was $2,389.0 million in 2008, a decrease of 0.9 percent relative to the prior year. The level of invested assets

was higher in 2008 compared to 2007, but we received fewer bond call premiums during 2008. The weaker British pound in 2008 relative

to 2007 also unfavorably affected translated results for net investment income. Our portfolio yield has increased slightly year over year due

to the investment of new cash at higher rates than that of prior periods, particularly during the last two quarters of 2008.

Net investment income was $2,409.9 million in 2007, an increase of 3.8 percent relative to the prior year. The increase was due primarily

to growth in invested assets, partially offset by a lower yield due to the investment of new cash at lower rates than that of our existing portfolio

yield and a decline in the level of prepayment income on mortgage-backed securities. The pound strengthened during 2007 relative to 2006,

which favorably affected translated results for net investment income.

The duration weighted book yield on the fixed income securities in our investment portfolio was 6.72 percent as of December 31, 2008,

and the weighted average credit rating was A2. This compares to a yield of 6.66 percent as of December 31, 2007 and a weighted average

credit rating of A2. At December 31, 2008, the weighted average duration of our policyholder liability portfolio was approximately 7.17 years,

and the weighted average duration of our investment portfolio supporting those policyholder liabilities was approximately 6.51 years.

Realized investment gains and losses, before tax, are as follows:

(in millions of dollars)

Gross Realized Investment Gain from Sales

Gross Realized Investment Loss

Write-downs

Sales

Total

Change in Fair Value of DIG Issue B36 Derivatives

Net Realized Investment Gain (Loss)

Year Ended December 31

2008

$ 79.1

166.1

87.2

253.3

(291.7)

$(465.9)

2007

$105.8

76.2

37.5

113.7

(57.3)

$ (65.2)

2006

$82.0

17.2

57.3

74.5

(5.3)

$2.2

Realized Investment Losses $10.0 Million or Greater from Other than Temporary Impairments

• During 2008, we recognized an other than temporary impairment loss of $39.3 million on a principal protected equity linked note

issued by a Fortune 500 financial services company, the return of which is linked to a Vanguard S&P 500 index mutual fund. This note

had an embedded derivative contract and substituted highly rated bonds in place of the underlying S&P 500 index mutual fund to

provide principal protection if there was a significant decline in the equities market. The note derived its value from the underlying

S&P 500 index mutual fund. At the time of the other than temporary impairment loss recognition, the decline in the S&P 500 index

had not been significant enough to trigger the substitution of the bonds, but due to the recent steep decline in the S&P 500 index,

we could no longer conclude that the value of the underlying S&P 500 index mutual fund would equate to or exceed the par value

of the security at maturity. At the time of the impairment loss, these securities had been in an unrealized loss position for a period of

greater than three years. The circumstances of this impaired investment have no impact on other investments.

• During 2008, we recognized an other than temporary impairment loss of $32.0 million on securities issued by a U.S. based automobile

manufacturer and its captive finance subsidiary. The company has experienced a decline in profitability and cash flow due to the weak

economic environment. Although the company has not yet received government bailout money, the probability of receiving some

form of government financial aid has significantly increased. Other U.S. automakers that have received bailout money are expected

to request their bondholders to accept a significant reduction in principal. In order for this company to stay competitive with other

U.S. automakers, it is likely that it, too, will seek debt relief from its bondholders and that we will not recover our entire principal for

these securities. At the time of the impairment loss, these securities had been in an unrealized loss position for a period of greater

than three years.

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

• During 2008, we recognized an other than temporary impairment loss of $27.8 million on securities issued by a large investment

banking firm. The company experienced a rapid deterioration in its credit and derivatives portfolio, which made it impossible for

the firm to raise additional capital or to sell assets to increase liquidity. The inability to raise capital forced the company to file for

bankruptcy protection in the third quarter of 2008. The firm was rated A2 by Moody’s and A by S&P at the time of the bankruptcy

filing. At the time of the impairment loss, these securities had been in an unrealized loss position for a period of greater than two

years but less than three years.

• During 2008, we recognized an other than temporary impairment loss of $21.6 million on securities issued by a large publisher of

yellow page advertising. The outlook for this industry continues to worsen due to the secular change impacting the industry and due

to weak economic conditions. The company’s third quarter earnings were down significantly as compared to prior periods, and bad

debt expense and financial leverage increased significantly. These financial results increased the likelihood that the company

might violate bank covenants and seek waivers from its bondholders. Additionally, the company hired external consultants to advise

it on potential capital restructuring alternatives. These events increase the likelihood that the company will seek to tender its bonds

at a discounted value and that our bonds will not fully recover in value. At the time of the impairment loss, these securities had been

in an unrealized loss position for a period of greater than one year but less than two years.

• During 2008, we recognized an other than temporary impairment loss of $12.9 million on securities issued by a large international

chemical company. The company’s third quarter operating results were weak due to recessionary industry conditions and the negative

impact of hurricane activity on its oil refinery operations. Due to these factors, the company experienced a significant decline in its

liquidity. In late December, lenders denied the company’s request to obtain additional funding from its existing line of credit. As a

result, the company’s liquidity was insufficient to fund required cash outflows, and the company hired external consultants to advise

it on potential capital restructuring alternatives. We recorded an impairment loss in the fourth quarter of 2008 and subsequently sold

the securities in early 2009. At the time of the impairment loss, these securities had been in an unrealized loss position for a period

of greater than one year but less than two years.

• During 2008, we recognized an other than temporary impairment loss of $12.1 million on securities issued by a large newspaper

publishing company. The outlook for this industry continues to deteriorate due to the secular change away from newspaper advertising

and weak economic conditions. The company reported poor third quarter operating results. The increase in leverage and lower cash flows

increase the likelihood that the company may violate its bank covenants. The company has attempted to sell non-core assets to reduce

its debt, but it has been unable to execute a sale. As a result, it is likely that our bonds will not fully recover in value. At the time of the

impairment loss, these securities had been in an unrealized loss position for a period of greater than two years but less than three years.

• During 2007, we recognized an other than temporary impairment loss of $15.0 million on bonds issued by a large media company.

The company was the subject of a leveraged buyout that placed a large amount of debt on the balance sheet during 2007. Because of

our outlook for the future business prospects of this issuer, the length of time these securities had been in an unrealized loss position,

and a change in our intent to retain the security for a sufficient period of time for it to recover, we determined that an other than

temporary impairment had occurred. These securities were investment grade at the time of purchase but were downgraded to

below-investment-grade in the second quarter of 2006. At the time of the impairment, these securities had been in an unrealized loss

position for a period of greater than two years. The circumstances of this impaired investment have no impact on other investments.

• During 2007, we recognized losses of $18.4 million related to the decline in fair value below amortized cost for certain securities for which

it was determined during the third quarter of 2007 that we no longer had the intent to hold to recovery or maturity due to anticipated

changes in our capital requirements resulting from the reinsurance transactions involving our Individual Disability — Closed Block

segment business and the related issuance of $800.0 million of notes, as well as our capital redeployment plans.

• During 2007, we recorded an adjustment to the book values and related unrealized loss of two securitized asset trusts acquired in

2001 to reflect the values that would have been present had we recorded the investment income as dividends rather than interest

accretion. The book value adjustment of $20.2 million was recognized as a realized investment loss in the second quarter of 2007.

Because the investments no longer satisfied our investment objectives, we subsequently sold the trusts in June of 2007 and

recognized a realized investment gain of $24.9 million on the sale.

• We had no individual realized investment losses $10.0 million or greater from other than temporary impairments during 2006.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Realized Investment Losses $10.0 Million or Greater from Sale of Fixed Maturity Securities

• During 2008, we recognized a loss of $16.2 million on the sale of securities issued by the large investment banking firm discussed above.

• During 2008, we recognized a loss of $10.1 million on the disposition of the principal protected equity linked note discussed above.

The note’s substitution clause was triggered in the fourth quarter of 2008 due to the continued decline in the S&P 500 index. At the

time of the triggering event, we made the decision to take ownership in the underlying Vanguard S&P 500 index mutual fund

shares rather than accept the zero coupon bonds issued by the financial services company. At the time of disposition, this note had

been continuously in an unrealized loss position for a period of less than ninety days. The circumstances of this investment have no

impact on other investments.

• We had no individual realized investments losses $10.0 million or greater from the sale of fixed maturity securities during 2007.

• During 2006, we recognized a loss of $13.1 million on the sale of securities issued by a U.S. based automotive parts supplier. In the

first quarter of 2006, the company reported third quarter 2005 results which were significantly below expectations and also withdrew

guidance of positive free cash flow for its fiscal year 2005. Trade creditors put into place more stringent credit terms in response to the

weaker financial results, which forced the company into bankruptcy in the first quarter of 2006. A portion of these securities had an

investment-grade rating at the time of purchase, and a portion was purchased after the securities had been downgraded to below-

investment-grade in the second quarter of 2001. At the time of sale, these securities had been continuously in an unrealized loss

position for a period of greater than three years. The circumstances of this investment have no impact on other investments.

Change in Fair Value of DIG Issue B36 Derivative

We report changes in the fair value of an embedded derivative in a modified coinsurance arrangement as realized investment gains and

losses, as required under the provisions of DIG Issue B36. Losses in both 2008 and 2007 resulted primarily from a widening of credit spreads in

the overall investment market, as previously discussed.

DIG Issue B36 requires us to include in our realized investment gains and losses a calculation intended to estimate the value of the

option of our reinsurance counterparty to cancel the reinsurance contract with us. However, neither party can unilaterally terminate the

reinsurance agreement except in extreme circumstances resulting from regulatory supervision, delinquency proceedings, or other direct

regulatory action. Cash settlements or collateral related to this embedded derivative are not required at any time during the reinsurance

contract or at termination of the reinsurance contract, and any accumulated embedded derivative gain or loss reduces to zero over time

as the reinsured business winds down. We therefore view DIG Issue B36 as a reporting requirement that will not result in a permanent

reduction of assets or stockholders’ equity. The fair value of this embedded derivative was $(360.5) million and $(68.8) million at

December 31, 2008 and 2007, respectively, and is reported in other liabilities in our consolidated balance sheets.

Fair Value Measurements

Effective January 1, 2008, we adopted the provisions of Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair Value

Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value

measurements. SFAS 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. It

does not require any new fair value measurements. SFAS 157 clarifies a number of considerations with respect to fair value measurement

objectives for financial reporting and expands disclosure about the use of fair value measurements, with particular emphasis on the inputs

used to measure fair value. The adoption of SFAS 157 did not materially change the approach or methods we utilize for determining fair value

measurements or the fair values derived under those methods. See “Critical Accounting Estimates” contained herein and Notes 3 and 4 of the

“Notes to Consolidated Financial Statements” for further discussion of our fair value measurements.

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Fixed Maturity Securities

Fixed maturity securities at December 31, 2008, included $31.9 billion, or 99.4 percent, of bonds and $208.1 million, or 0.6 percent, of

redeemable preferred stocks. The following table shows the fair value composition by internal industry classification of the fixed maturity

bond portfolio and the associated unrealized gains and losses.

Fixed Maturity Bonds — By Industry Classification

As of December 31, 2008

(in millions of dollars)

Classification

Basic Industry

Canadian

Capital Goods

Communications

Consumer Cyclical

Consumer Non-Cyclical

Energy (Oil & Gas)

Financial Institutions

Mortgage/Asset-Backed

Sovereigns

Technology

Transportation

U.S. Government Agencies and Municipalities

Utilities

Total

Net
Unrealized
Gain (Loss)

Fair Value

Fair Value
of Bonds
with Gross
Unrealized
Loss

Gross
Unrealized
Loss

Fair Value
of Bonds
with Gross
Unrealized
Gain

Gross
Unrealized
Gain

$ 1,789.3

$ (345.0)

$ 1,423.7

$ 360.6

$ 365.6

$ 15.6

254.2

2,538.4

1,945.6

1,210.7

4,192.2

2,245.2

2,577.8

3,945.5

947.2

633.3

888.0

1,875.3

6,883.3

57.5

(327.3)

(207.4)

(298.7)

(168.7)

(170.1)

(327.1)

253.8

56.3

(87.9)

(15.0)

166.2

—

1,719.1

1,095.6

907.8

2,445.4

1,347.1

2,185.6

346.1

357.6

456.5

413.0

731.8

(682.5)

4,995.8

—

418.6

285.8

315.9

303.6

252.0

340.8

55.1

12.6

105.7

56.0

68.3

799.1

254.2

819.3

850.0

302.9

1,746.8

898.1

392.2

3,599.4

589.6

176.8

475.0

1,143.5

1,887.5

57.5

91.3

78.4

17.2

134.9

81.9

13.7

308.9

68.9

17.8

41.0

234.5

116.6

$31,926.0

$(2,095.9)

$18,425.1

$3,374.1

$13,500.9

$1,278.2

The following table is a distribution of the maturity dates for fixed maturity bonds in an unrealized loss position at December 31, 2008.

Fixed Maturity Bonds — By Maturity

As of December 31, 2008

(in millions of dollars)

Due in 1 year or less

Due after 1 year up to 5 years

Due after 5 years up to 10 years

Due after 10 years

Subtotal

Mortgage/Asset-Backed Securities

Total

Fair Value of Bonds with Gross Unrealized Loss

Gross Unrealized Loss

$ 109.7

2,080.8

6,315.8

9,572.7

18,079.0

346.1

$18,425.1

$ 3.2

207.8

1,086.7

2,021.3

3,319.0

55.1

$3,374.1

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Of the $3,374.1 million in gross unrealized losses at December 31, 2008, $2,719.0 million, or 80.6 percent, are related to investment-grade

fixed maturity bonds and result primarily from increases in interest rates or changes in market or sector credit spreads which occurred subsequent

to acquisition of the bonds.

The following two tables show the length of time our investment-grade and below-investment-grade fixed maturity bonds had been in

a gross unrealized loss position as of December 31, 2008 and at the end of the prior four quarters. The relationships of the current fair value

to amortized cost are not necessarily indicative of the fair value to amortized cost relationships for the securities throughout the entire time

that the securities have been in an unrealized loss position nor are they necessarily indicative of the relationships after December 31, 2008.

As is shown in the time period progression, the elevated level of unrealized losses occurred during the third and fourth quarters of 2008. The

increase in unrealized losses during the third and fourth quarters of 2008 results primarily from the significant widening of credit spreads that

occurred in the overall market.

Unrealized Loss on Investment-Grade Fixed Maturity Bonds

Length of Time in Unrealized Loss Position

As of December 31, 2008

(in millions of dollars)

December 31

September 30

June 30

March 31

December 31

2008

2007

Fair value < 100% >= 70% of amortized cost

<= 90

> 90 < 180

> 180 < 270

> 270 < 1 year

> 1 year < 2 years

> 2 years < 3 years

> 3 years

Subtotal

Fair value < 70% >= 40% of amortized cost

<= 90

> 90 < 180

> 180 <= 270

> 270 <= 1 year

> 1 year <= 2 years

> 2 years <= 3 years

> 3 years

Subtotal

Fair Value < 40%

> 270 <= 1 year

> 1 year <= 2 years

> 2 years <= 3 years

> 3 years

Subtotal

Total

$ 171.3

$ 286.8

$ 95.8

$110.7

$ 8.7

335.1

271.8

292.9

461.4

196.7

404.2

223.2

215.9

50.7

449.7

477.7

389.9

108.7

24.4

23.9

265.4

479.6

125.1

2,133.4

2,093.9

1,122.9

—

1.6

35.7

68.9

209.6

57.9

162.0

535.7

6.3

31.3

11.7

0.6

49.9

4.8

1.2

18.5

—

54.3

36.3

55.2

170.3

—

5.6

48.3

53.9

—

14.4

48.7

35.4

198.5

154.2

295.9

755.8

0.4

25.3

25.7

23.5

29.7

85.3

161.6

403.0

113.1

926.9

— —

0.6

31.6

32.2

— —

$2,719.0

$2,264.2

$1,176.8

$959.1

$781.5

69081_2008AR_FIN.indd 73

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Unrealized Loss on Below-Investment-Grade Fixed Maturity Bonds

Length of Time in Unrealized Loss Position

As of December 31, 2008

(in millions of dollars)

December 31

September 30

June 30

March 31

December 31

2008

2007

Fair value < 100% >= 70% of amortized cost

$ 25.6

$ 11.5

$ 2.7

$ 7.9

$ 5.6

48.7

42.2

16.3

39.8

0.4

26.6

10.5

27.6

19.4

88.7

14.5

30.1

8.8

12.5

12.6

46.0

31.1

37.6

8.1

22.5

30.4

23.9

38.4

12.0

11.4

19.9

11.3

19.3

40.7

15.7

199.6

202.3

151.3

143.2

123.9

17.5

32.3

18.4

160.8

28.1

67.5

324.6

6.2

15.3

26.8

37.1

45.5

130.9

$655.1

—

2.6

3.5

19.9

8.4

54.7

89.1

—

36.5

21.8

28.6

86.9

2.2

—

13.9

7.5

25.0

22.0

70.6

—

— —

1.6 —

13.8 —

— —

39.2

10.5 —

65.1

— —

7.9

$378.3

$221.9

$208.3

$131.8

<= 90

> 90 < 180

> 180 < 270

> 270 < 1 year

> 1 year < 2 years

> 2 years < 3 years

> 3 years

Subtotal

Fair value < 70% >= 40% of amortized cost

> 90 < 180

> 180 <= 270

> 270 <= 1 year

> 1 year <= 2 years

> 2 years <= 3 years

> 3 years

Subtotal

Fair Value < = 40%

> 180 <= 270

> 270 <= 1 year

> 1 year <= 2 years

> 2 years <= 3 years

> 3 years

Subtotal

Total

69081_2008AR_FIN.indd 74

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

As of December 31, 2008, we held 102 fixed maturity securities with a gross unrealized loss of $10.0 million or greater, as shown in the

chart below.

Gross Unrealized Losses on Fixed Maturity Securities

$10.0 Million or Greater

As of December 31, 2008

(in millions of dollars)

Classification

Investment-Grade

Utilities

Financial Institutions

Capital Goods

Consumer Cyclical

Consumer Non-Cyclical

Basic Industry

Communications

Energy

U.S. Government Agencies

Transportation

Technology

Total

Below-Investment-Grade

Communications

Consumer Cyclical

Basic Industry

Capital Goods

Technology

Consumer Non-Cyclical

Financial Institutions

Energy

Utilities

Total

Fair Value

Gross
Unrealized
Loss

Number
of Issuers

$1,064.7

$ 294.6

326.5

665.2

265.7

509.6

255.0

208.3

389.7

560.2

61.0

37.6

239.5

223.5

125.2

112.2

109.0

97.1

95.5

61.2

23.2

12.3

$4,343.5

$1,393.3

$ 86.3

$ 89.7

58.8

64.2

68.4

19.1

42.3

6.1

20.9

42.3

75.6

65.2

22.7

22.0

21.0

12.9

12.0

10.9

$ 408.4

$ 332.0

Unrealized losses on investment-grade fixed maturity securities principally relate to changes in interest rates or changes in market or

sector credit spreads which occurred after the acquisition of the securities. These changes are generally temporary and are not recognized

as realized investment losses unless the securities are sold, it becomes unlikely that we will hold the securities until recovery based on

relevant facts and circumstances, or the securities become other than temporarily impaired. Generally, below-investment-grade fixed

maturity securities are more likely to develop credit concerns. In determining whether a decline in fair value below amortized cost of a

fixed maturity security is other than temporary, we utilize a formal, well-defined, and disciplined process to monitor and evaluate our fixed

income investment portfolio. The process results in a thorough evaluation of problem investments and the recording of realized losses

on a timely basis for investments determined to have an other than temporary impairment. See previous discussion of our other than

temporary impairment analysis under “Critical Accounting Estimates” contained herein.

69081_2008AR_FIN.indd 75

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

For those fixed maturity securities with an unrealized loss and on which we have not recorded an impairment loss, we believe that

the decline in fair value below amortized cost is temporary. We have the ability and intent to hold our securities to the earlier of recovery

or maturity. If information becomes available that changes our assessment as to whether we will receive contractual payments related

to a fixed maturity security and the security is also not projected to recover in value, the related security is generally sold. We may also in

certain circumstances sell a security in an unrealized loss position because of changes in tax laws, when a merger or the disposition of a

segment or product line results in positions outside of our investment guidelines, due to changes in regulatory or capital requirements,

due to unexpected changes in liquidity needs, to better match portfolio cash flows, or to take advantage of relative value opportunities

or tender offers that recover up to or beyond the cost of the investment.

Gross Unrealized Losses on Fixed Maturity Securities

$20.0 Million or Greater

As of December 31, 2008

(in millions of dollars)

Fixed Maturity Bonds

Investment-Grade

Fair Value

Gross Unrealized Loss

Principal Protected Equity Linked Trust Certificates

$ 50.3

$ 28.8

U.S. Based Insurance and Financial Services Company

Global Building Materials Company

U.S. Based Retail Company

Canadian Based Railroad Company

U.S. Based Forest Products Company

U.K. Based Financial Institution

U.S. Based Metals and Mining Company

U.S. Government Sponsored Mortgage Funding Company

Canadian Based Metals and Mining Company

U.S. Based Media Conglomerate

U.S. Based Building Materials Company

U.S. Based Electric Utility Company

Netherlands Based Financial Institution

U.S. Based Food and Agricultural Company

U.S. Based Electric Utility Company

U.S. Based Power Tool Manufacturing Company

Total

Below-Investment-Grade

15.6

60.3

38.0

35.2

51.1

61.0

57.8

51.8

43.5

61.8

560.2

64.2

42.1

49.0

54.0

43.1

106.4

57.7

78.2

37.6

29.6

26.0

25.3

24.0

23.2

20.2

35.9

32.1

23.8

61.2

36.7

30.6

25.6

25.2

22.7

22.5

20.2

$1,581.3

$576.4

Length of Time
in a Loss Position

> 180 <= 270 days

> 1 year <= 2 years

> 2 years <= 3 years

> 3 years

U.S. Based Recreational Products Company

$ 10.6

$ 20.8

> 270 days <= 1 year

U.S. Based Media Conglomerate

U.S. Based Automotive Supply Company

Canadian Based Metals and Mining Company

Total

4.6

17.7

18.8

35.1

23.7

21.0

> 3 years

$ 51.7

$100.6

69081_2008AR_FIN.indd 76

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

For those securities with a gross unrealized loss of $20.0 million or greater, further discussed as follows are (a) the factors which we

believe resulted in the impairment and (b) the information we considered, both positive and negative, in reaching the conclusion that the

impairments were not other than temporary. We believe the decline in fair value of these securities is temporary, and we have the ability

to hold these securities to the earlier of recovery or maturity.

Investment-Grade Fixed Maturity Securities:

• The principal protected equity linked trust certificates represent our investment in a trust which holds forward contracts to purchase

shares of a Vanguard S&P 500 index mutual fund. This trust also holds a defeasance swap contract for U.S. Treasury bonds to provide

principal protection for the investments. The trust investment derives its value from the underlying S&P 500 index mutual fund.

This security is currently at an unrealized loss because the fixed rate of accretion on the note has exceeded the rate of return on the

underlying S&P 500 index fund since the purchase date of the note. Because we purchased this security at a price point in a previous

market decline in the S&P 500 index mutual fund, we believe that the value of the underlying S&P 500 index mutual fund will

equate to or exceed the par value of the security at maturity.

• The fair value of the U.S. based insurance and financial services company securities declined primarily due to liquidity concerns

specific to the company and for financial institutions in general. The company’s balance sheet is solid, and its core businesses are

profitable. The company also owns marketable assets which can be sold to increase liquidity. The company is seeking approval to

participate in the U.S. Treasury Department’s Capital Purchase Program under the Troubled Asset Relief Program in an effort to gain

access to government funding.

• The decline in the fair value of the global building materials company is due to the increased slowdown in commercial and infrastructure-

related construction as well as a weak residential construction market. The company maintains adequate liquidity and owns marketable

long-lived assets.

• The decline in the fair value of the global building materials company is due to the increased slowdown in commercial and infrastructure-

related construction as well as a weak residential construction market. While the company has acquisition-related debt that will require

refinancing in the near future, it reduced this liquidity need through new debt issuance and asset sales prior to the current market

pressure on credit availability. The company also owns marketable long-lived assets.

• The decline in fair value of the U.S. based retail company is due to the recent decline in consumer spending and the depressed

economy. While concerns surrounding the retail sector and consumer spending will continue to affect performance, the company

maintains its leading market position and has adequate liquidity to withstand an economic downturn.

• The decline in fair value of the U.S. based retail company is due to the recent decline in consumer spending and the depressed

economy. Management has reduced capital spending and has taken other appropriate steps to maintain adequate liquidity. While

concerns surrounding the retail sector and consumer spending will continue to affect performance, the company has the financial

strength to withstand an economic downturn.

• The decline in fair value of the Canadian based railroad company securities is due primarily to its weakened financial risk profile

resulting from a recent debt financed acquisition. The company’s position is strengthened by stable industry fundamentals and

a favorable regulatory environment. The company has adequate access to capital markets, and it recently implemented cash

preservation policies such as suspension of its share repurchase program and freezing any shareholder dividend increases. Additionally,

management has stated that it will seek to improve cash flow through the implementation of operational efficiencies and a reduction in

capital expenditures. Current liquidity should provide adequate coverage for near term funding requirements.

• The decline in fair value of the U.S. based forest products company securities is due to lower demand and weaker pricing

capabilities in the current environment. The company has adequate liquidity to meet its obligations and has a strong asset base

through its ownership of 5.9 million acres of timberland.

69081_2008AR_FIN.indd 77

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

• The decline in the fair value of the securities of the U.K. based financial institution is primarily the result of the global credit crisis

and the slowdown in the economy. In addition, a major acquisition at the peak of the credit cycle required this institution to realize

impairments in loans and other assets, resulting in the need for additional capital. This capital was initially provided by shareholders

and others, but as the economic environment deteriorated further, the company participated in the U.K. government guarantee of

senior debt and capital injections in the form of preferred and common equity. Currently, the company is 58 percent owned by the

U.K. government. Its current strategy is to reduce risk on its balance sheet and make asset sales as the market improves.

• The decline in the fair value of the securities of the U.K. based financial institution is primarily the result of the global credit crisis and

the slowdown in the economy. The company is well diversified and has global market operations in capital markets, asset-backed

securities, wealth management, asset management, commodities, and insurance. The company has recently raised capital apart

from the U.K. government program and purchased capital market businesses. The company eliminated its dividend during 2008 to

accumulate additional capital.

• The decline in the fair value of the securities of the U.S. based metals and mining company is due to the increased slowdown in global

economic activity, resulting in lower commodity prices and earnings pressure for the sector. The company continues to proactively

adjust its production activities to preserve its liquidity and manage through the current economic downturn. The company also owns

marketable long-lived assets.

• The fixed maturity securities of the U.S. government sponsored mortgage funding company were issued by the Federal Home Loan

Mortgage Corporation. The securities were rated AAA by S&P as of December 31, 2008, with no negative outlook by rating agencies.

The decline in the fair value of these securities relates to changes in interest rates subsequent to purchase of the securities as well as

concerns related to the mortgage market.

• The decline in fair value of the Canadian based metals and mining company securities is due to the increased slowdown in global

economic activity, resulting in lower commodity prices and earnings pressure for the sector. The company’s credit profile has been

strengthened due to its recent acquisition by a larger, more diversified metals and mining company. The company also owns

marketable long-lived assets. The company has adequate liquidity and free cash flow from operations.

• The fair value of the U.S. based media conglomerate securities declined due to general widening of credit spreads in the media industry,

particularly among companies sensitive to the cyclical advertising market. The company generates significant free cash flow, maintains a

sizeable cash balance, and owns interests in various media businesses that provide additional liquidity.

• The decline in fair value of the U.S. based building materials company securities is due to the ongoing weakness in the residential and

remodeling markets. The company has adequate liquidity and maintains free cash flow given its low capital expenditure requirements.

• The decline in the fair value of the U.S. based electric utility company securities is primarily due to the general widening of credit

spreads in the corporate bond market. The company is located in a growing service territory, and recent regulatory decisions have

been favorable to its business.

• The decline in the fair value of the Netherlands based financial institution securities is due to the overall widening of credit spreads in

the corporate bond market. The company is one of the largest and strongest banks in the Netherlands. The company’s Tier 1 capital,

which is seen as the core measure of a bank’s financial strength, is indicative of a well capitalized financial institution.

• The fair value of the U.S. based food and agricultural company securities declined primarily due to a general widening of credit spreads

in the market, exacerbated by the securities’ very long-term maturity dates. The company has strong operating cash flows and is free

cash flow positive.

• The decline in the fair value of the U.S. based electric utility company securities is primarily due to the general widening of credit

spreads in the investment-grade corporate bond market. The company operates a fully regulated business with no retail competition.

The company’s customer base is expected to grow due to the expansion of a military base located within its service territory. Liquidity

remains adequate.

• The decline in fair value of the U.S. based power tools manufacturing company securities results primarily from weak consumer

demand. Despite declining demand, the company continues to maintain positive earnings and cash flow. The company has sufficient

liquidity and no near-term refinancing needs.

69081_2008AR_FIN.indd 78

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Below-Investment-Grade Fixed Maturity Securities:

• The decline in fair value of the U.S. based recreational products company securities results from a significant decline in consumer

durable goods spending. The company operates in highly cyclical industries, and demand for its products has deteriorated rapidly.

The company entered the current economic downturn with a significant cash balance and still retains adequate liquidity to

manage through the current economic cycle.

• The fair value of the U.S. based media conglomerate securities declined due to the increase in leverage from a leveraged buyout

transaction, as well as a general widening of credit spreads in the media industry. The company is expected to continue to generate

sufficient cash flow to service its debt obligations, and it has ownership interests in a variety of media businesses that could be sold to

further reduce leverage.

• The fair value of the securities of the U.S. based automotive supply company declined due to lower vehicle production from multiple

domestic automobile manufacturers. The company maintains a significant amount of cash and liquidity to manage through the current

economic cycle, with limited near-term debt maturities. The company has a dominant position in its markets.

• The decline in fair value of the Canadian based metals and mining company is due to the increased slowdown in global economic

activity, resulting in lower commodity prices and earnings pressure for this sector. As part of its diversification strategy, the company

recently increased its leverage due to an acquisition prior to the current market pressure on credit availability. The company has

ample cash flow to significantly reduce its debt burden in the coming year, which should allow for a timely refinance or extension of its

bridge debt. The company also owns marketable long-lived assets.

Our mortgage/asset-backed securities were approximately $3.7 billion and $4.0 billion on an amortized cost basis at December 31,

2008 and 2007, respectively. At December 31, 2008, the mortgage/asset-backed securities had an average life of 3.79 years, effective

duration of 4.04 years, and a weighted average credit rating of AAA. The mortgage/asset-backed securities are valued on a monthly basis

using valuations supplied by the brokerage firms that are dealers in these securities as well as independent pricing services. The primary

risk involved in investing in mortgage/asset-backed securities is the uncertainty of the timing of cash flows from the underlying loans

due to prepayment of principal with the possibility of reinvesting the funds in a lower interest rate environment. We use models which

incorporate economic variables and possible future interest rate scenarios to predict future prepayment rates. The timing of prepayment

cash flows may also cause volatility in our recognition of investment income. We recognize investment income on these securities using a

constant effective yield based on projected prepayments of the underlying loans and the estimated economic life of the securities. Actual

prepayment experience is reviewed periodically, and effective yields are recalculated when differences arise between prepayments

originally projected and the actual prepayments received and currently projected. The effective yield is recalculated on a retrospective

basis, and the adjustment is reflected in net investment income.

We have not invested in mortgage-backed derivatives, such as interest-only, principal-only, or residuals, where market values can be

highly volatile relative to changes in interest rates. All of our mortgage-backed securities have fixed rate coupons. The credit quality of our

mortgage-backed securities portfolio has not been negatively impacted by the recent issues in the market concerning subprime mortgage

loans. The change in value of our mortgage-backed securities portfolio has moved in line with that of prime agency-backed mortgage-

backed securities.

As of December 31, 2008, our exposure to below-investment-grade fixed maturity securities was $1,633.9 million, approximately

4.6 percent of the carrying value of invested assets excluding ceded policy loans. Below-investment-grade bonds are inherently more risky

than investment-grade bonds since the risk of default by the issuer, by definition and as exhibited by bond rating, is higher. Also, the secondary

market for certain below-investment-grade issues can be highly illiquid. Additional downgrades may occur, but we do not anticipate any liquidity

problem caused by our investments in below-investment-grade securities, nor do we expect these investments to adversely affect our

ability to hold our other investments to maturity.

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

We have a significant interest in, but are not the primary beneficiary of, a special purpose entity which is a collateralized bond obligation

asset trust (CBO) in which we hold interests in several of the tranches and for which we act as investment manager of the underlying high-

yield securities. This entity is a cash flow CBO and was fully funded at the time of issuance. Our potential losses in this CBO are limited to our

investment in the entity. Our investment in this entity is reported at fair value with fixed maturity securities in the consolidated balance

sheets. The fair value of this investment was derived from the fair value of the underlying assets. The fair value and amortized cost of this

investment were $2.5 million and $2.4 million, respectively, at December 31, 2008, and $12.0 million and $11.8 million, respectively, at

December 31, 2007.

Mortgage Loans

Our mortgage loan portfolio was $1,274.8 million and $1,068.9 million on an amortized cost basis at December 31, 2008 and 2007,

respectively. Our mortgage loan portfolio is comprised entirely of commercial mortgage loans. We expect that we will continue to add

investments in this category either through the secondary market or through loan originations. We believe our mortgage loan portfolio is

well diversified geographically and among property types. The incidence of problem mortgage loans and foreclosure activity is currently

low. Due to conservative underwriting, we expect the level of delinquencies and problem loans to remain low relative to the industry.

At December 31, 2008, delinquent mortgage loans, or those past due more than 30 days as to interest or principal payments, totaled

$5.2 million and were considered impaired loans. The impaired loans were deemed permanently impaired and are reported at the estimated

net realizable value. We had no delinquent or impaired mortgage loans at December 31, 2007 and no valuation allowance for mortgage

loans at December 31, 2008 or 2007.

Derivative Financial Instruments

We use derivative financial instruments to manage reinvestment risk, duration, and currency risk. Historically, we have utilized interest

rate futures contracts, current and forward interest rate swaps and options on forward interest rate swaps, current and forward currency

swaps, interest rate forward contracts, forward treasury locks, currency forward contracts, and forward contracts on specific fixed income

securities. All of these freestanding derivative transactions are hedging in nature and not speculative. Positions under our hedging programs

for derivative activity that were open during 2008 involved current and forward interest rate swaps, current and forward currency swaps,

currency forward contracts, forward treasury locks, and options on forward interest rate swaps. Almost all hedging transactions are

associated with the individual and group long-term care and the individual and group disability products. All other product portfolios are

periodically reviewed to determine if hedging strategies would be appropriate for risk management purposes.

Our current credit exposure on derivatives, which is limited to the value of those contracts in a net gain position less collateral held,

was $37.7 million at December 31, 2008. The carrying value of fixed maturity securities pledged as collateral to our counterparties was

$107.9 million at December 31, 2008. We believe that our credit risk is mitigated by our use of multiple counterparties, all of whom are

rated A or better by both Moody’s and S&P. See Note 5 of the “Notes to Consolidated Financial Statements” for additional information.

Other

Our exposure to non-current investments, on a fair value basis, totaled $11.8 million and $2.6 million at December 31, 2008 and

2007, respectively.

Liquidity and Capital Resources

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 an additional source 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.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

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, further deterioration in the credit market could delay our ability to sell our positions in certain of our fixed maturity securities in a

timely manner, 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 our stockholder dividends or meet our debt and other payment obligations.

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.

We have met all minimum pension funding requirements set forth by ERISA. We expect to make a voluntary contribution of approximately

$70.0 million in 2009 to our U.S qualified defined benefit pension plan, based on current tax law. We have evaluated the Pension Protection Act

of 2006 which requires companies to fully fund defined benefit pension plans over a seven year period and have made estimates of amounts to

be funded in the future. Based on this assessment, we do not believe that the funding requirements of the Pension Protection Act will cause a

material adverse effect on our liquidity.

We also contribute to our U.K. pension plan sufficient to meet the minimum funding requirement under U.K. legislation. We anticipate

that we will make a contribution of approximately £3.5 million during 2009.

In the near term, we expect that our need for external financing is small, but changes in our business as noted above could increase

our need. Our short-term debt repayment requirements for 2009 can be met through existing cash flows. We currently anticipate that

we may issue long-term debt of $150.0 million to $300.0 million during 2009, depending on market conditions and the availability and

cost of financing.

In light of the recent credit market turmoil, we have implemented a more conservative cash management strategy with respect to

our securities lending and commercial paper investment programs. In addition, we have a $250.0 million unsecured revolving credit facility

and an open shelf registration that we can utilize as needed to provide additional liquidity and financial flexibility. We believe our cash

resources are sufficient to meet our liquidity requirements for the next 12 months and that our current level of holding company liquidity

can be utilized to mitigate potential losses from defaults.

During 2009, we intend to retain sufficient capital in our traditional U.S. insurance subsidiaries to maintain a weighted average RBC

ratio in excess of our stated long-term objective of 300 percent. We also intend to maintain our leverage ratio at or slightly below our target

levels and maintain, as a minimum threshold, liquidity at our holding companies sufficient to cover one year of fixed charges, measured as

interest expense plus common stock dividends.

Consolidated Cash Flows

Our cash flows from discontinued operations are combined with cash flows from continuing operations within each cash flow statement

category in our consolidated statements of cash flows for the applicable periods. The absence of cash flows from discontinued operations has

not, nor is it expected to, materially affect liquidity and capital resources.

Operating Cash Flows

Net cash provided by operating activities was $1,326.1 million for the year ended December 31, 2008, compared to $1,750.3 million

and $1,431.9 million for the comparable periods of 2007 and 2006, respectively. Operating cash flows are primarily attributable to the

receipt of premium and investment income, offset by payments of claims, commissions, expenses, and income taxes. Premium income

growth is dependent not only on new sales, but on renewals of existing business, renewal price increases, and stable persistency.

Investment income growth is dependent on the growth in the underlying assets supporting our insurance reserves and on the level of

portfolio yield rates. Increases in commissions and operating expenses are attributable primarily to new sales growth and the first year

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

acquisition expenses associated with new business. The level of paid claims is due partially to the growth and aging of the block of

business and also to the general economy, as previously discussed in the operating results by segment. Included in operating cash flows

for 2008, 2007, and 2006 are voluntary pension contributions to our U.S. qualified defined benefit plan of $130.0 million, $110.0 million,

and $92.0 million, respectively. We also had increased cash inflows of approximately $211.4 million in 2007 due to the reinsurance

recapture of a small block of individual disability business.

The fluctuation in the income tax adjustment to reconcile net income to net cash provided by operating activities is due primarily to

the deferred tax asset established during 2008 related to the change in the fair value of the DIG Issue B36 derivative and a tax benefit

recognized during 2006 which resulted from the reversal of tax liabilities related to group relief benefits recognized from the use of net

operating losses in a foreign jurisdiction. The decrease in the “Other, Net” adjustment to reconcile net income to net cash provided by

operating activities in 2008 compared to the prior two years is due primarily to the 2007 and 2006 reclassification of costs related to early

retirement of debt to cash flows from financing activities.

Investing Cash Flows

Investing cash inflows consist primarily of the proceeds from the sales and maturities of investments. Investing cash outflows consist

primarily of payments for purchases of investments. Net cash used by investing activities was $424.7 million for the year ended December 31,

2008 compared to $1,855.0 million and $1,222.0 million for the comparable periods of 2007 and 2006, respectively.

Proceeds from sales and maturities of available-for-sale securities in 2008 were consistent with the level of 2007 primarily due to

an increase in bond maturities and bonds that were called at par, offset by a decrease in sales of fixed maturity securities, a lower level of

proceeds from mortgage-backed securities prepayments, and the translation of investment proceeds from our U.K. operations at lower

exchange rates. Proceeds from sales and maturities of other investments decreased in 2008 primarily due to lower proceeds from the sale

of common stock investments and a reduction in commercial mortgage loan maturities and prepayments. The reduction in cash flows

received on other investments was partially offset by higher proceeds in 2008 from terminations of derivatives within our cash flow

hedging programs.

Purchases of available-for-sale securities decreased during 2008 relative to 2007 in part due to the lower exchange rate for translation

of purchases within our U.K. operations and to investing more heavily in short-term investments rather than fixed maturity securities during

the last half of 2008. During the first half of 2008, we invested more heavily in fixed maturity securities as we continued to transition out of

short-term investments into floating rate fixed maturity securities to support the floating rate debt issued during the fourth quarter of 2007.

Net sales of short-term investments increased during 2008 due in part to the sale of investments to fund the $700.0 million accelerated

share repurchase agreements executed one half in each of January and August 2008, as well as the transition to floating rate fixed maturity

securities in lieu of short-term investments during the first half of 2008.

Proceeds from acquisitions relate to the second quarter of 2008 Unum UK acquisition of a group long-term disability claims portfolio.

We had lower proceeds from sales and maturities of available-for-sale securities in 2007 compared to 2006, primarily due to a decrease

in scheduled maturities of fixed maturity securities as well as a lower level of proceeds from principal prepayments on mortgage-backed

securities. Somewhat offsetting this decline was the sale of a block of available-for-sale securities to generate the liquidity needed to

repurchase debt in the fourth quarter of 2007 as part of our capital redeployment plan.

Purchases of available-for-sale securities increased during 2007 in comparison to 2006, in part due to the investing of the net cash

inflows of $98.8 million from the sale of GENEX and the $211.4 million cash inflows from the reinsurance recapture. Purchases of other

investments declined during 2007 relative to 2006 due to a decline in the purchase of commercial mortgage loans.

During the second quarter of 2007, a portion of the proceeds from the issuance of the 17.7 million shares of common stock was invested

in short-term investments, thereby contributing to the higher purchase of short-term investments in 2007. Also, during the third quarter of 2007,

there was an increase in net purchases of short-term investments to provide liquidity needed for the capital redeployment plan announced

in the fourth quarter of 2007 in conjunction with the issuance of the Northwind Holdings debt.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Net purchases of short-term investments increased during 2007 compared to 2006 as a result of the liquidity needed for our capital

redeployment plan previously discussed. During the fourth quarter of 2007, we issued $800.0 million of debt and invested the proceeds in

floating rate bonds and short-term investments. Short-term investments were used as an interim investment as we sought suitable floating

rate investments to support the floating rate debt. We also purchased short-term investments throughout 2007 as we anticipated the

funding needed for our common stock repurchase program.

Policy loans, as reported in our consolidated balance sheet, declined during 2007 in comparison to 2006 due to the surrender of a

portion of our ceded corporate-owned life insurance block of business. The termination of this fully ceded business had no impact on our

cash inflows or outflows.

The proceeds from dispositions in 2007 relate to the sale of GENEX.

Financing Cash Flows

Financing cash flows consist primarily of borrowings and repayments of debt, issuance or repurchase of common stock, and dividends

paid to stockholders. Net cash used by financing activities was $1,049.5 million for the year ended December 31, 2008 compared to net cash

provided of $181.2 million for the year ended December 31, 2007 and net cash used of $157.0 million for the year ended December 31, 2006.

During 2007, Unum Group’s board of directors authorized the repurchase of up to $700.0 million of Unum Group common stock. In

2008, we completed our share repurchase program and purchased 29.9 million shares of Unum Group common stock for $700.0 million.

During 2008, we retired the remaining $175.0 million of our 5.997% senior notes and we purchased and retired $17.8 million of our

outstanding 5.859% notes. At December 31, 2008, we held $190.5 million of short-term debt, $58.3 million of which was borrowed during

2008. The remaining $132.2 million represents debt previously classified as long-term but which now has a maturity date within one year

after the date of our balance sheet.

During 2008, we purchased and retired $36.6 million aggregate principal amount of our outstanding 6.85% notes due 2015.

During 2008, Tailwind Holdings made principal payments on its floating rate, senior secured non-recourse notes due 2036 of $10.0 million.

During 2008, Northwind Holdings made principal payments of $59.3 million on its floating rate, senior secured non-recourse notes due 2037.

During 2007, we received proceeds of approximately $800.0 million, less debt issuance costs of $15.1 million, from the issuance

of $800.0 million aggregate principal amount of debt by Northwind Holdings. We also repurchased and/or made principal payments of

$769.5 million aggregate principal amount of outstanding debt during 2007, for an aggregate cash outflow of $803.7 million including

the debt repurchase costs of $34.2 million.

During 2007, we received proceeds of approximately $300.0 million and issued 17.7 million shares of common stock upon the settlement

of the common stock purchase contract element of the 2004 units.

During 2006, we received proceeds of approximately $130.0 million, less debt issuance costs of $4.1 million, from the issuance of

$130.0 million aggregate principal amount of debt by Tailwind Holdings. We also repurchased and/or made principal payments of

$732.0 million aggregate principal amounts of outstanding debt during 2006, for an aggregate cash outflow of $749.9 million including

debt repurchase costs of $17.9 million.

During 2006, we received proceeds of approximately $575.0 million and issued 43.3 million shares of common stock upon the settlement

of the common stock purchase contract element of the 2003 units.

See “Debt” contained herein for further information.

Cash Available from Subsidiaries

Unum Group and certain of its intermediate holding company subsidiaries and/or finance 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 interest payments on loans from the parent to a subsidiary, operating and investment

management fees, and/or dividends.

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

During 2008 and 2006, Unum Group received $100.0 million and $150.0 million, respectively, from its insurance subsidiaries for the

repayment of surplus debentures previously issued to Unum Group in 1997 and in 1996. The debentures had maturity dates of October

2027 and December 2006, respectively.

Restrictions under applicable state insurance laws limit the amount of ordinary 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 United States, 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 ordinary dividends to a parent company from its insurance subsidiaries is generally further limited to the amount of

statutory surplus as it relates to policyholders. Based on the restrictions under current law, during 2009, $653.3 million is available for the

payment of ordinary dividends to Unum Group from its traditional U.S. insurance subsidiaries, excluding Northwind Re and Tailwind Re.

Unum Group and/or certain of its finance subsidiaries may also receive dividends from its United Kingdom-based affiliate, Unum Limited,

subject to applicable insurance company regulations and capital guidance in the United Kingdom. Approximately £145.5 million is available

for the payment of dividends from Unum Limited during 2009, subject to regulatory approval.

The amount available during 2008 for the payment of ordinary dividends from Unum Group’s traditional U.S. insurance subsidiaries

was $626.5 million, of which $165.6 million was declared and paid. The traditional U.S. insurance subsidiaries also paid extraordinary

dividends of $469.1 million in 2008 of which $28.2 million was declared in 2007. The amount available during 2008 from Unum Limited was

£202.1 million, of which £125.0 million was declared and paid.

Northwind Holdings’ and Tailwind Holdings’ ability to meet their debt payment obligations will be dependent upon the receipt of

dividends from Northwind Re and Tailwind Re, respectively. The ability of Northwind Re and Tailwind Re to pay dividends to their respective

parent companies will depend on their satisfaction of applicable regulatory requirements and on the performance of the reinsured

business. During 2008, Northwind Re received regulatory approval from the insurance department of its state of domicile to pay dividends

of $80.6 million to Northwind Holdings, and Tailwind Re received regulatory approval from the insurance department of its state of domicile

to pay dividends of $24.1 million to Tailwind Holdings.

The payment of dividends to the parent company from our subsidiaries also requires the approval of the individual subsidiary’s board

of directors.

The ability of Unum Group and certain of its intermediate holding company subsidiaries and/or finance subsidiaries to continue to

receive dividends from their insurance subsidiaries without regulatory approval generally depends on the level of earnings of those insurance

subsidiaries as calculated under law. In addition to regulatory restrictions, the amount of dividends that may be paid by insurance subsidiaries

will depend on additional factors, such as RBC ratios, funding growth objectives at an affiliate level, and maintaining appropriate capital

adequacy ratios to support desired ratings. Insurance regulatory restrictions do not limit the amount of dividends available for distribution

from non-insurance subsidiaries except where the non-insurance subsidiaries are held directly or indirectly by an insurance subsidiary and

only indirectly by Unum Group. Unum Group’s RBC ratio for its traditional U.S. insurance subsidiaries, calculated on a weighted average basis

using the NAIC Company Action Level formula, was approximately 332 percent at the end of 2008, with the individual RBC ratios for Unum

Group’s principal traditional U.S. insurance subsidiaries all in excess of our long-term target ratio of 300 percent. The individual RBC ratios for

Northwind Re and Tailwind Re, our special purpose financial captive insurance companies, are calculated using the NAIC Company Action

Level formula and have a target level of 200 percent. The RBC ratios for Northwind Re and Tailwind Re were each approximately equal to the

200 percent target level at the end of 2008. The individual RBC ratio for each of our insurance subsidiaries is above the range that would

require state regulatory action.

Debt

At December 31, 2008, we had long-term debt, including senior secured notes and junior subordinated debt securities, totaling

$2,259.4 million and short-term debt of $190.5 million. Short-term debt consisted of $132.2 million 5.859% senior notes due May 2009 and

$58.3 million of reverse repurchase agreements. The reverse repurchase agreements were entered into during the fourth quarter of 2008,

with a weighted average interest rate of 2.71 percent and a maturity date of January 20, 2009. Our leverage ratio, when calculated excluding

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

the non-recourse debt and associated capital of Tailwind Holdings and Northwind Holdings, was 21.5 percent at December 31, 2008, compared

to 21.4 percent at December 31, 2007. Our leverage ratio, when calculated using consolidated debt to total consolidated capital, was 26.6 percent

at December 31, 2008 compared to 26.4 percent at December 31, 2007.

We monitor our compliance with our debt covenants. There are no significant financial covenants associated with any of our outstanding

debt obligations. A ratings downgrade from either S&P or Moody’s with respect to the “shadow” or underlying debt rating on the non-recourse

debt issued by Tailwind Holdings or Northwind Holdings could cause an increase in the fee paid to the third party guarantor on those debt

issuances but would not cause a breach. We remain in compliance with all debt covenants and have not observed any current trends that

would cause a breach of any debt covenants.

Purchases and Retirement of Debt

During 2008, we retired the remaining $175.0 million of our 5.997% senior notes. During 2008, we made principal payments of

$59.3 million and $10.0 million on our senior secured non-recourse variable rate notes issued by Northwind Holdings and Tailwind Holdings,

respectively. We also purchased and retired $36.6 million of our 6.85% senior debentures due 2015 and $17.8 million of our 5.859% senior

notes due May 2009.

In 2007, we purchased and retired $17.5 million of our outstanding 6.75% notes scheduled to mature in 2028. Pursuant to a cash

tender offer, we purchased and retired $23.5 million aggregate liquidation amount of the 7.405% junior subordinated debt securities due

2038; $99.9 million aggregate principal amount of the 7.625% notes due 2011; $210.5 million aggregate principal amount of the 7.375%

notes due 2032; and $66.1 million aggregate principal amount of the 6.75% notes due 2028. We also called and retired all $150.0 million

principal amount of our outstanding 7.25% notes scheduled to mature in 2032.

Also in 2007, in open market transactions, we purchased $34.5 million of our outstanding 6.85% notes due 2015 and $17.5 million of

our outstanding senior secured notes issued by Tailwind Holdings. In February 2007, the scheduled remarketing of the senior note element

of the 2004 units occurred, as stipulated by the terms of the original offering, and we reset the interest rate of $300.0 million of senior notes

due May 15, 2009 to 5.859%. We purchased $150.0 million of the senior notes in the remarketing which were subsequently retired. In

May 2007, we settled the purchase contract element of the units by issuing 17.7 million shares of common stock. We received proceeds of

approximately $300.0 million from the transaction.

In 2006, pursuant to a cash tender offer, we purchased and retired $50.0 million aggregate liquidation amount of our 7.405% junior

subordinated debt securities due 2038 and $250.0 million aggregate principal amount of our outstanding 7.625% notes due 2011. Also in

2006, in open market transactions, we purchased $32.0 million of our outstanding 6.85% notes due 2015.

In February 2006, the scheduled remarketing of the senior note element of the 2003 units occurred, as stipulated by the terms of the

original offering, and we reset the interest rate on $575.0 million of senior notes due May 15, 2008 to 5.997%. We purchased $400.0 million

of the senior notes in the remarketing which were subsequently retired. In May 2006, we settled the purchase contract element of the units

by issuing 43.3 million shares of common stock. We received proceeds of approximately $575.0 million from the transaction.

Issuance of Debt

In 2007, Northwind Holdings issued $800.0 million floating rate, insured, senior, secured notes in a private offering. Recourse for the

payment of principal, interest, and other amounts due on the notes will be limited to the assets of Northwind Holdings, consisting primarily

of the stock of its sole subsidiary Northwind Re, a Vermont special purpose financial captive insurance company. Northwind Holdings’

ability to meet its payment obligations under the notes will be dependent principally upon its receipt of dividends from Northwind Re. The

ability of Northwind Re to pay dividends to Northwind Holdings will depend on its satisfaction of applicable regulatory requirements and on

the performance of the reinsured claims of Provident, Paul Revere and Unum America (the ceding insurers) reinsured by Northwind Re.

None of Unum Group, the ceding insurers, Northwind Re or any other affiliate of Northwind Holdings is an obligor or guarantor on the

notes. The balance outstanding on these notes was $740.7 million at December 31, 2008.

In 2006, Tailwind Holdings issued $130.0 million floating rate, insured, senior, secured notes in a private offering. Recourse for the

payment of principal, interest, and other amounts due on the notes will be limited to the assets of Tailwind Holdings, consisting primarily of

the stock of its sole subsidiary Tailwind Re, a South Carolina special purpose financial captive insurance company. Tailwind Holdings’ ability

to meet its payment obligations under the notes will be dependent principally upon its receipt of dividends from Tailwind Re. The ability of

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Tailwind Re to pay dividends to Tailwind Holdings will depend on its satisfaction of applicable regulatory requirements and on the performance

of the reinsured claims of Unum America reinsured by Tailwind Re. None of Unum Group, Unum America, Tailwind Re or any other affiliate of

Tailwind Holdings is an obligor or guarantor on the notes. The balance outstanding on these notes was $102.5 million at December 31, 2008.

In 2005, Unum Group repatriated $454.8 million in unremitted foreign earnings from its U.K. subsidiaries, and as part of its repatriation

plan, issued $400.0 million of 6.85% senior debentures due November 15, 2015 in a private offering. The aggregate principal amount

outstanding was $296.7 million at December 31, 2008.

In 2002, Unum Group completed two long-term offerings, issuing $250.0 million of 7.375% senior debentures due June 15, 2032 and

$150.0 million of 7.250% public income notes due June 15, 2032. The public income notes were called and retired in 2007 as previously

discussed. The 7.375% notes have an aggregate principal amount outstanding of $39.5 million at December 31, 2008.

In 2001, Unum Group issued $575.0 million of 7.625% senior notes due March 1, 2011. The aggregate principal amount outstanding

was $225.1 million at December 31, 2008.

In 1998, Unum Group completed public offerings of $200.0 million of 7.25% senior notes due March 15, 2028, $200.0 million of 7.0%

senior notes due July 15, 2018, and $250.0 million of 6.75% senior notes due December 15, 2028. None of these amounts have been

reduced other than the 6.75% notes, which have an aggregate principal amount outstanding of $166.4 million at December 31, 2008.

In 1998, Provident Financing Trust I (the trust) issued $300.0 million of 7.405% capital securities in a public offering. These capital securities,

which mature on March 15, 2038, are fully and unconditionally guaranteed by Unum Group, have a liquidation value of $1,000 per capital

security, and have a mandatory redemption feature under certain circumstances. Unum Group issued 7.405% junior subordinated deferrable

interest debentures, which mature on March 15, 2038, to the trust in connection with the capital securities offering. The securities issued by

the trust have an aggregate principal amount outstanding of $226.5 million at December 31, 2008.

Unum Group has debt securities with an aggregate principal amount outstanding of $62.0 million which were initially issued in three

separate series in 1990, 1993, and 1996, pursuant to an indenture dated September 15, 1990. The notes are fixed maturity rate notes with

fixed maturity dates ranging between nine months to thirty years from the issuance date.

Credit Facility

On December 8, 2008, we entered into $250.0 million unsecured revolving credit facility. Borrowings under the facility are for general

corporate uses and are subject to financial covenants, negative covenants, and events of default that are customary. The facility has a

364 day tenor and a one year term out option. The facility provides for interest rates based on either the prime rate or LIBOR, as adjusted.

Within this facility is a $100.0 million letter of credit sub-limit. At December 31, 2008, there were no amounts outstanding on the facility.

Our previously existing $400.0 million credit facility expired as scheduled during 2008.

Although we believe that maintenance of the unsecured revolving credit facility provides an important source for contingent liquidity,

we do not anticipate the need to access funds through the facility as we are able to meet short-term liquidity needs from operating cash

flows. Our credit facility contains financial covenants regarding our leverage, net worth, interest coverage, issuer credit rating, and risk-

based capital position. We do not anticipate any violation of those covenants. However, if economic conditions worsen and we incur

unexpected losses, we could violate certain of the financial covenants imposed by the credit facility and lose access to available funds

through that facility.

Shelf Registration

We have a shelf registration, which became effective in December 2008, with the Securities and Exchange Commission to issue

various types of securities, including common stock, preferred stock, debt securities, depository shares, stock purchase contracts, units

and warrants, or preferred securities of wholly-owned finance trusts. If utilized, the shelf registration will enable us to raise funds from

the offering of any individual security covered by the shelf registration as well as any combination thereof, subject to market conditions

and our capital needs.

See Note 8 of the “Notes to Consolidated Financial Statements” for additional information.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

Commitments

The following table summarizes contractual obligations and our reinsurance recoverable by period as of December 31, 2008

(in millions of dollars). Excluded from the table are tax liabilities of approximately $163.2 million for which we are unable to make

reasonably reliable estimates of the period of potential cash settlements, if any, with taxing authorities.

Payments Due

Short-term Debt

Long-term Debt

Policyholder Liabilities

Pensions and Other Postretirement Benefits

Payable for Collateral Under Derivative

Financial Instruments

Miscellaneous Liabilities

Operating Leases

Purchase Obligations

Total

Receipts Due

Total

In 1 Year

or Less

After 1 Year

After 3 Years

up to 3 Years

up to 5 Years

After 5 Years

$ 193.4

$ —

4,926.3

39,293.6

2,156.1

174.3

612.0

95.6

64.8

143.1

4,291.0

104.0

174.3

576.2

26.6

60.5

497.1

6,418.8

187.3

251.9

4,952.7

194.2

4,034.2

23,631.1

1,670.6

—

4.6

37.5

4.3

—

6.1

18.0

—

25.1

13.5

—

$47,516.1

$5,569.1

$7,149.6

$5,422.9

$29,374.5

Reinsurance Recoverable

$ 7,636.1

$ 322.1

$ 577.0

$ 6,160.0

Short-term and long-term debt includes contractual principal and interest payments and therefore exceeds the amount shown in the

consolidated balance sheet. See Note 8 of the “Notes to Consolidated Financial Statements” for additional information.

Policyholder liability maturities and the related reinsurance recoverable represent the projected payout of the current inforce policyholder

liabilities and the expected cash inflows from reinsurers for liabilities ceded and therefore incorporate uncertainties as to the timing and amount

of claim payments. We utilize extensive liability modeling to project future cash flows from the inforce business. The primary assumptions

used to project future cash flows are claim incidence rates for mortality and morbidity, claim resolution rates, persistency rates, and interest

rates. These cash flows are discounted to determine the current value of the projected claim payments. The timing and amount of payments

on policyholder liabilities may vary significantly from the projections above. See our previous discussion of asset/liability management under

“Investments” contained herein.

Pensions and other postretirement benefit obligations include our defined benefit pension and postretirement plans for our employees,

including non-qualified pension plans. Pension plan obligations, other than the non-qualified plans, represent our contributions to the pension

plans. Amounts in the one year or less category equal our planned contributions within the next 12 months. The remaining years’ contributions

are projected based on the expected future contributions as required under ERISA. Non-qualified pension plan and other postretirement benefit

obligations represent the expected benefit payments related to these plans, discounted with respect to interest and reflecting expected future

service, as appropriate. See Note 9 of the “Notes to Consolidated Financial Statements” and “Critical Accounting Estimates” contained herein for

additional information.

Payable for collateral represents the obligation to return unrestricted cash collateral received from our counterparties in derivative

transactions. The timing of the return of the collateral is uncertain and is therefore included in the one year or less category. See Note 5 of

the “Notes to Consolidated Financial Statements” for additional information.

Miscellaneous liabilities include commissions due and accrued, deferred compensation liabilities, state premium taxes payable, amounts

due to reinsurance companies, accounts payable, fair value of derivative obligations, and various other liabilities that represent contractual

obligations. Obligations where the timing of the payment was uncertain were included in the one year or less category.

Operating leases include noncancelable obligations on certain office space and equipment.

69081_2008AR_FIN.indd 87

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Unum
2008

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Purchase obligations include commitments of $37.8 million to fund certain of our investments in private placement securities and

partnerships and $4.1 million for commercial mortgage loan originations. These are shown in the table above based on the expiration date

of the commitments. The funds will be due upon satisfaction of contractual notice from the partnership trustee or issuer of the private

placement securities or at closing of the mortgage loans. The amounts may or may not be funded. Also included are noncancelable

obligations with outside parties for computer data processing services and related functions and software maintenance agreements. The

aggregate obligation remaining under these agreements was $22.9 million at December 31, 2008.

Off-Balance Sheet Arrangements

As noted in the preceding discussion, we have operating lease commitments and purchase obligations totaling $95.6 million and

$64.8 million, respectively, at December 31, 2008.

We maintain a committed and unsecured credit facility and letters of credit. See “Debt” contained herein for further description of

this arrangement.

As part of our regular investing strategy, we receive collateral from unaffiliated third parties through transactions which include both

securities lending and also short-term agreements to purchase securities with the agreement to resell them at a later specified date. For

both types of transactions, we require that a minimum of 102 percent of the fair value of the securities loaned or securities purchased under

repurchase agreements be maintained as collateral. Generally, cash is received as collateral under these agreements. In the event that

securities are received as collateral, we are not permitted to sell or re-post them. We also post our fixed maturity securities as collateral

to unaffiliated third parties through transactions including both securities lending and short-term agreements to sell securities with the

agreement to repurchase them at a later specified date. At December 31, 2008, the carrying value of fixed maturity securities posted as

collateral to third parties under these programs was $80.6 million.

To help limit the credit exposure of the derivatives, we enter into master netting agreements with our counterparties whereby

contracts in a gain position can be offset against contracts in a loss position. We also typically enter into bilateral, cross-collateralization

agreements with our counterparties to help limit the credit exposure of the derivatives. These agreements require the counterparty in a

loss position to submit acceptable collateral with the other counterparty in the event the net loss position meets or exceeds an agreed upon

amount. Our current credit exposure on derivatives, which is limited to the value of those contracts in a net gain position less collateral held,

was $37.7 million at December 31, 2008. We post fixed maturity securities as collateral to our counterparties rather than cash. The carrying

value of fixed maturity securities posted as collateral to our counterparties was $107.9 million at December 31, 2008.

Our derivatives counterparties have posted non-cash collateral in various segregated custody accounts to which we have a security

interest in the event of counterparty default. This collateral, which is not reflected in the table above, had a market value of $174.6 million at

December 31, 2008.

Ratings

AM Best, Fitch, Moody’s, and S&P are among the third parties that assign issuer credit ratings to Unum Group and financial strength

ratings to our insurance subsidiaries. Issuer credit ratings reflect an agency’s opinion of the overall financial capacity of a company to meet

its senior debt obligations. Financial strength ratings are specific to each individual insurance subsidiary and reflect each rating agency’s

view of the overall financial strength (capital levels, earnings, growth, investments, business mix, operating performance, and market

position) of the insuring entity and its ability to meet its obligations to policyholders. Both the issuer credit ratings and financial strength

ratings incorporate quantitative and qualitative analyses by rating agencies and are routinely reviewed and updated on an ongoing basis.

We compete based in part on the financial strength ratings provided by rating agencies. A downgrade of our financial strength ratings

can be expected to adversely affect us and could potentially, among other things, adversely affect our relationships with distributors of our

products and services and retention of our sales force, negatively impact persistency and new sales, particularly large case group sales and

individual sales, and generally adversely affect our ability to compete. A downgrade in the issuer credit rating assigned to Unum Group can

be expected to adversely affect our cost of capital or our ability to raise additional capital.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Unum 2008

The table below reflects the issuer credit ratings for Unum Group and the financial strength ratings for each of our traditional insurance

subsidiaries as of the date of this filing.

Issuer Credit Ratings

Financial Strength Ratings

Provident Life & Accident

Provident Life & Casualty

Unum Life of America

First Unum Life

Colonial Life & Accident

Paul Revere Life

Paul Revere Variable

Unum Limited

AM Best

Fitch

Moody’s

S&P

bbb- (Good)

BBB- (Good)

Ba1 (Speculative)

BBB- (Good)

A- (Excellent)

A- (Strong)

Baa1 (Adequate)

A- (Strong)

A- (Excellent)

A- (Strong)

Not Rated

A- (Excellent)

A- (Strong)

Baa1 (Adequate)

A- (Strong)

A- (Excellent)

A- (Strong)

Baa1 (Adequate)

A- (Strong)

A- (Excellent)

A- (Strong)

Baa1 (Adequate)

A- (Strong)

A- (Excellent)

A- (Strong)

Baa1 (Adequate)

A- (Strong)

A- (Excellent)

A- (Strong)

Baa1 (Adequate)

Not Rated

A- (Excellent)

Not Rated

A- (Strong)

We maintain an ongoing dialogue with the four rating agencies that evaluate us in order to inform them of progress we are making

regarding our strategic objectives and financial plans, as well as other pertinent issues. A significant component of our communications

involves an annual review meeting; included as well are other meetings not limited to quarterly updates regarding our business. During the

second quarter of 2008, we held our annual review meetings with S&P and Moody’s. In the fourth quarter 2008, we held our annual review

meetings with AM Best and Fitch.

On January 29, 2008, AM Best reaffirmed the ratings of Unum Group and its operating subsidiaries and upgraded the company’s

outlook from “negative” to “stable.” The agency’s revised outlook was attributed to our increased financial flexibility, the quality of our

investment portfolio, the operational execution of our operating segments, and the completion of the claim reassessment process. On

February 4, 2008, Fitch revised its outlook for Unum Group and its operating subsidiaries to “positive” from “stable,” citing our progress

in increasing profitability and decreasing risk along with our improved capitalization levels as the basis for the upgrade. On February 14,

2008, Moody’s revised its outlook for Unum Group and its operating subsidiaries to “stable” from “negative,” basing its revision on the

overall improvement in our financial flexibility.

On July 17, 2008, S&P raised its counterparty credit and senior unsecured debt rating on Unum Group from “BB+” to “BBB-” and raised

its counterparty credit and financial strength ratings on Unum Group’s insurance subsidiaries from “BBB+” to “A-”. S&P stated that the rating

actions were reflective of the maintenance of our market position, the improved insurance risk profile of the company, our operating

profitability, the enhanced investments quality of our portfolio, and our stronger capitalization through statutory earnings. Coincident with

the ratings action, the company’s outlook from S&P was revised from “positive” to “stable.”

There have been no other changes in any of the rating agencies’ outlook statements or ratings during 2008 or prior to the date of

this filing.

Agency ratings are not directed toward the holders of our securities and are not recommendations to buy, sell, or hold our securities.

Each rating is subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be regarded as an

independent assessment, not conditional on any other rating. Given the dynamic nature of the ratings process, changes by these or other

rating agencies may or may not occur in the near-term. Based on our ongoing dialogue with the rating agencies concerning our improved

insurance risk profile, our financial flexibility, our operating performance, and the quality of our investment portfolio, we do not expect

any negative actions from any of the four rating agencies related to either Unum Group’s current issuer credit ratings or the financial

strength ratings of its insurance subsidiaries. However, in the event that we are unable to meet the rating agency specific guideline

values to maintain our current ratings, including but not limited to maintenance of our capital management metrics at the threshold

values stated and maintenance of our financial flexibility and operational consistency, we could be placed on a negative credit watch,

with a potential for a downgrade to both our issuer credit ratings and our financial strength ratings.

See “Ratings” contained in Item 1 and “Risk Factors” contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended

December 31, 2008 for further discussion.

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Unum
2008

Quantitative and Qualitative Disclosures
About Market Risk

We are subject to various market risk exposures, including interest rate risk and foreign exchange rate risk. The following discussion

regarding our risk management activities includes forward-looking statements that involve risk and uncertainties. Estimates of future

performance and economic conditions are reflected assuming certain changes in market rates and prices were to occur (sensitivity analysis).

Caution should be used in evaluating our overall market risk from the information presented below, as actual results may differ.

See “Investments” contained herein and Notes 4 and 5 of the “Notes to Consolidated Financial Statements” for further discussions of the

qualitative aspects of market risk, including derivative financial instrument activity.

Interest Rate Risk

Our exposure to interest rate changes results from our holdings of financial instruments such as fixed rate investments, derivatives,

and interest-sensitive liabilities. Fixed rate investments include fixed maturity securities, mortgage loans, policy loans, and short-term

investments. Fixed maturity securities include U.S. and foreign government bonds, securities issued by government agencies, corporate

bonds, mortgage-backed securities, and redeemable preferred stock, all of which are subject to risk resulting from interest rate fluctuations.

Certain of our financial instruments, fixed maturity securities and derivatives, are carried at fair value in our consolidated balance sheets.

The fair value of these financial instruments may be adversely affected by changes in interest rates. A rise in interest rates may increase

the net unrealized loss related to these financial instruments, but may improve our ability to earn higher rates of return on new purchases

of fixed maturity securities. Conversely, a decline in interest rates may decrease the net unrealized loss, but new securities may be

purchased at lower rates of return. Although changes in fair value of fixed maturity securities and derivatives due to changes in interest

rates may impact amounts reported in our consolidated balance sheets, these changes will not cause an economic gain or loss unless we

sell investments, terminate derivative positions, determine that an investment is other than temporarily impaired, or determine that a

derivative instrument is no longer an effective hedge.

Other fixed rate investments, such as mortgage loans and policy loans, are carried at amortized cost and unpaid balances, respectively,

rather than fair value in our consolidated balance sheets. These investments may have fair values substantially higher or lower than the carrying

values reflected in our balance sheets. A change in interest rates could impact our financial position if we sold our mortgage loan investments at

times of low market value. A change in interest rates would not impact our financial position at repayment of policy loans, as ultimately the

cash surrender values or death benefits would be reduced for the carrying value of any outstanding policy loans. Carrying amounts for short-

term investments approximate fair value, and we believe we have minimal interest rate risk exposure from these investments.

We believe that the risk of being forced to liquidate investments or terminate derivative positions is minimal, primarily due to the level

of capital at our insurance subsidiaries, our holding company liquidity position, and our investment strategy which we believe provides for

adequate cash flows to meet the funding requirements of our business. We may in certain circumstances, however, need to sell investments

due to changes in regulatory or capital requirements, changes in tax laws, rating agency decisions, and/or unexpected changes in liquidity needs.

Although the majority of our liabilities related to insurance contracts are not interest rate sensitive and we therefore have minimal

exposure to policy withdrawal risk, the fair values of liabilities under all insurance contracts are taken into consideration in our overall

management of interest rate risk, which minimizes exposure to changing interest rates through the matching of investment cash flows

with amounts due under insurance contracts. Changes in interest rates and individuals’ behavior affect the amount and timing of asset and

liability cash flows. We actively manage our asset and liability cash flow match and our asset and liability duration match to minimize interest

rate risk. We model and test asset and liability portfolios to improve interest rate risk management and net yields. Testing the asset and liability

portfolios under various interest rate and economic scenarios allows us to choose what we believe to be the most appropriate investment

strategy, as well as to prepare for disadvantageous outcomes. This analysis is the precursor to our activities in derivative financial instruments.

We use current and forward interest rate swaps, currency forward contracts, forward treasury locks, and options on forward interest rate

swaps to hedge interest rate risks and to match asset durations and cash flows with corresponding liabilities.

Short-term and long-term debt are not carried at fair value in our consolidated balance sheets. If we modify or replace existing short-

term or long-term debt instruments at current market rates, we may incur a gain or loss on the transaction. We believe our debt-related risk

to changes in interest rates is relatively minimal. In the near term, we expect that our need for external financing is small, but changes in

our business could increase our need. Our short-term debt repayment requirements for 2009 can be met through existing cash flows.

69081_2008AR_FIN.indd 90

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Quantitative and Qualitative Disclosures

About Market Risk

Unum 2008

We measure our financial instruments’ market risk related to changes in interest rates using a sensitivity analysis. This analysis estimates

potential changes in fair values as of December 31, 2008 and 2007 based on a hypothetical immediate increase of 100 basis points in interest

rates from year end levels. The selection of a 100 basis point immediate parallel change in interest rates should not be construed as our

prediction of future market events, but only as an illustration of the potential effect of such an event.

The hypothetical potential changes in fair value of our financial instruments at December 31, 2008 and 2007 are shown as follows:

(in millions of dollars)

Assets

Fixed Maturity Securities (1)

Mortgage Loans

Policy Loans, Net of Reinsurance Ceded

Liabilities

Unrealized Adjustment to Reserves,

Net of Reinsurance Ceded and Other (2)

Short-term Debt

Long-term Debt

Derivatives (1)

Swaps

Forwards

DIG Issue B36 Embedded Derivative

(in millions of dollars)

Assets

Fixed Maturity Securities (1)

Mortgage Loans

Policy Loans, Net of Reinsurance Ceded

Liabilities

Unrealized Adjustment to Reserves,

Net of Reinsurance Ceded and Other (2)

Short-term Debt

Long-term Debt

Derivatives (1)

Swaps

Forwards

Options

DIG Issue B36 Embedded Derivative

December 31, 2008

Notional

Hypothetical

Amount of Derivatives

Fair Value

FV + 100 BP

Change in FV

$32,134.1

$29,719.2

$(2,414.9)

1,224.4

255.4

1,206.3

242.4

(18.1)

(13.0)

$ 809.8

$ 1,921.9

$ 1,112.1

(188.9)

(1,677.4)

(188.5)

(1,614.4)

0.4

63.0

$2,265.8

266.3

$ 242.2

$ 156.2

$ (86.0)

60.2

(360.5)

65.0

(330.3)

4.8

30.2

December 31, 2007

Notional

Hypothetical

Amount of Derivatives

Fair Value

FV + 100 BP

Change in FV

$35,814.7

$32,984.5

$(2,830.2)

1,079.8

228.7

1,019.8

218.3

(60.0)

(10.4)

$ (859.3)

$ 299.6

$ 1,158.9

(175.3)

(2,673.8)

(174.5)

(2,530.8)

0.8

143.0

$2,590.6

315.1

80.0

$ (69.0)

$ (208.0)

$ (139.0)

(28.8)

6.6

(68.8)

(10.8)

1.8

(77.9)

18.0

(4.8)

(9.1)

(1) These assets and liabilities are carried at fair value in our consolidated balance sheets. Changes in fair value resulting from changes in interest rates may affect the fair
value at which the item is reported in our consolidated balance sheets with a corresponding offsetting change reported in other comprehensive income or loss, net of
deferred taxes.

(2) The adjustment to reserves and other for unrealized investment gains and losses reflects the adjustments that would be necessary to deferred acquisition costs and

policyholder liabilities 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.

69081_2008AR_FIN.indd 91

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Unum
2008

Quantitative and Qualitative Disclosures
About Market Risk

The effect of a change in interest rates on asset prices was determined using a duration implied methodology for corporate bonds and

government and government agency securities whereby the duration of each security was used to estimate the change in price for the

security assuming an increase of 100 basis points in interest rates. The effect of a change in interest rates on the mortgage-backed securities

was estimated using a mortgage analytic system which takes into account the impact of changing prepayment speeds resulting from a

100 basis point increase in interest rates on the change in price of the mortgage-backed securities. These hypothetical prices were compared

to the actual prices for the period to compute the overall change in market value. The changes in the fair values shown in the chart above

for all other items were determined using discounted cash flows analyses. Because we actively manage our investments and liabilities,

actual changes could be less than those estimated above.

Foreign Currency Risk

The functional currency of our U.K. operations is the British pound sterling. We are exposed to foreign currency risk arising from fluctuations

in the British pound sterling to U.S. dollar exchange rates primarily as they relate to the translation of the financial results of our U.K. operations.

Fluctuations in the pound to dollar exchange rate have an effect on our reported financial results. We do not hedge against the possible impact of

this risk. Because we do not actually convert pounds into dollars except for a limited number of transactions, we view foreign currency translation

as a financial reporting issue and not a reflection of operations or profitability in the U.K.

Assuming the pound to dollar exchange rate decreased 10 percent from the December 31, 2008 and 2007 levels, stockholders’ equity

as reported in U.S. dollars as of and for the periods then ended would have been lower by approximately $72.8 million and $98.2 million,

respectively. Assuming the pound to dollar average exchange rate decreased 10 percent from the actual average exchange rates for 2008

and 2007, segment operating income, which excludes net realized investment gains and losses and income tax, as reported in U.S. dollars

would have decreased approximately $33.5 million and $33.8 million, respectively, for the years then ended.

Dividends paid by Unum Limited are generally held at our U.K. finance subsidiary. If these funds are repatriated to our U.S. holding

company, we would at that time be subject to foreign currency risk as the value of the dividend, when converted into U.S. dollars, would

be dependent upon the foreign exchange rate at the time of conversion.

We are also exposed to foreign currency risk related to certain foreign investment securities denominated in local currencies and U.S.

dollar denominated debt issued by one of our U.K. subsidiaries. We use current and forward currency swaps and contracts to hedge or

minimize the foreign exchange risk associated with these instruments.

See “Unum UK Segment” contained herein for further information concerning foreign currency translation and Note 5 of the “Notes to

Consolidated Financial Statements” for further discussions of derivative financial instrument activity.

69081_2008AR_FIN.indd 92

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Quantitative and Qualitative Disclosures

About Market Risk

Unum 2008

Risk Management

We have an Enterprise Risk Management (ERM) program. Our ERM program strives to:

• Identify, measure, mitigate as appropriate, and report on our risk positions and exposures, including notable risk events;

• Provide an assessment of our material risks, including how they affect us, how individual risks interrelate, and how management

addresses the risks;

• Coordinate development of and compliance with risk appetite statements, including systematic limit monitoring;

• Identify emerging risks and analyze how material future risks might impact us;

• Practice strong risk management, including ensuring diversification across and within business units; and

• Fulfill regulatory, rating agency, and governance objectives.

We employ a “pyramid” risk committee structure, beginning with Unum Group’s board of director committees and cascading down

to business unit risk committees, to govern our ERM process and manage our risks in an integrated manner. Collectively, these committees

are responsible for managing our strategic, market, credit, insurance, operational, capital and liquidity, and reputational risks.

Business unit risk committees for each of our three primary business units as well as our corporate function are responsible for

identifying, measuring, reporting, and managing insurance and operational risks within their respective areas, consistent with established

corporate risk tolerance levels. We manage insurance and operational risk at the business unit level, based on consistent principles and

policies established at the corporate level. Internal quality controls are routinely monitored by the risk committees. Market and credit risk

are jointly managed by our investment committee, which is also responsible for monitoring our investment risk appetite and ratifying

investment transactions. Capital and liquidity risk is under the purview of the capital management committee, which is responsible for

planning and monitoring capital allocation, financing, liquidity, and solvency considerations. An executive risk management committee is

responsible for overseeing our enterprise-wide risk management program that is managed by our chief risk officer. The executive management

team is responsible for managing our strategic risk. We provide an ERM report to the audit committee of Unum Group’s board of directors

on a regular basis.

We believe that by effectively executing against these objectives we will be better positioned to fulfill our corporate mission, improve

and protect shareholder value, and reduce reputational risk.

69081_2008AR_FIN.indd 93

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Unum
2008

Consolidated Balance Sheets

(in millions of dollars)

Assets

Investments

December 31

2008

2007

Fixed Maturity Securities — at fair value (amortized cost: $34,407.6; $34,628.1)

$32,134.1

$35,814.7

Mortgage Loans

Policy Loans

Other Long-term Investments

Short-term Investments

Total Investments

Other Assets

Cash and Bank Deposits

Accounts and Premiums Receivable

Reinsurance Recoverable

Accrued Investment Income

Deferred Acquisition Costs

Goodwill

Property and Equipment

Deferred Income Tax

Other Assets

Separate Account Assets

1,274.8

2,753.8

520.1

1,183.1

1,068.9

2,617.7

232.1

1,486.8

37,865.9

41,220.2

49.9

1,784.8

4,974.2

605.6

2,472.4

200.5

409.4

438.8 —

605.4

10.5

199.1

1,914.7

5,160.0

592.3

2,381.9

204.3

393.7

615.5

20.2

Total Assets

See notes to consolidated financial statements.

$49,417.4

$52,701.9

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Consolidated Balance Sheets

(in millions of dollars)

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

Other Liabilities

Separate Account Liabilities

Total Liabilities

Commitments and Contingent Liabilities — Note 14

Stockholders’ Equity

Common Stock, $0.10 par

Authorized: 725,000,000 shares

Issued: 362,949,412 and 362,844,570 shares

Additional Paid-in Capital

Accumulated Other Comprehensive Income (Loss)

Net Unrealized Gain (Loss) on Securities

Net Gain on Cash Flow Hedges

Foreign Currency Translation Adjustment

Unrecognized Pension and Postretirement Benefit Costs

Retained Earnings

Treasury Stock — at cost: 31,829,067 and 1,951,095 shares

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

See notes to consolidated financial statements.

Unum 2008

December 31

2008

2007

$ 1,769.5

$ 1,979.7

34,581.5

35,828.0

463.9

1,675.6

115.5

—

190.5

2,259.4

1,953.1

10.5

523.1

1,821.2

148.6

251.7

175.0

2,515.2

1,399.3

20.2

43,019.5

44,662.0

36.3

2,546.9

(832.6)

458.5

(177.6)

(406.5)

5,527.1

(754.2)

6,397.9

36.3

2,516.9

356.1

182.5

123.4

(198.5)

5,077.4

(54.2)

8,039.9

$49,417.4

$52,701.9

69081_2008AR_FIN.indd 95

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Unum
2008

Consolidated Statements of Income

(in millions of dollars, except share data)

Revenue

Premium Income

Net Investment Income

Net Realized Investment Gain (Loss)

Other Income

Total Revenue

Benefits and Expenses

Year Ended December 31

2008

2007

2006

$7,783.3

$ 7,901.1

$ 7,948.2

2,389.0

2,409.9

2,320.6

(465.9)

275.9

(65.2)

274.1

2.2

264.3

9,982.3

10,519.9

10,535.3

Benefits and Change in Reserves for Future Benefits

6,626.4

6,988.2

7,577.2

853.3

156.7

841.1

241.9

(590.9)

(556.3)

519.1

772.6

821.1

480.4

722.4

805.0

819.0

217.6

(528.2)

478.6

680.5

825.2

9,158.3

9,522.7

10,069.9

824.0

997.2

465.4

340.9

(70.1)

270.8

553.2

—

264.2

60.6

324.8

672.4

17.8

10.9

6.9

150.5

(88.7)

61.8

403.6

13.2

5.8

7.4

$ 553.2

$ 679.3

$ 411.0

$ 1.62

$ 1.90

$ 1.92

$ 1.25

$ 1.27

$ 1.62

$ 1.89

$ 1.91

$ 1.21

$ 1.23

Commissions

Interest and Debt Expense

Deferral of Acquisition Costs

Amortization of Deferred Acquisition Costs

Compensation Expense

Other Expenses

Total Benefits and Expenses

Income from Continuing Operations Before Income Tax

Income Tax (Benefit)

Current

Deferred

Total Income Tax

Income from Continuing Operations

Discontinued Operations — Note 2

Income Before Income Tax

Income Tax

Income from Discontinued Operations

Net Income

Earnings Per Common Share

Basic

Income from Continuing Operations

Net Income

Assuming Dilution

Income from Continuing Operations

Net Income

See notes to consolidated financial statements.

69081_2008AR_FIN.indd 96

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Consolidated Statements of Income

Consolidated Statements of Stockholders’ Equity

Unum 2008

(in millions of dollars)

Common Stock

Balance at Beginning of Year

Common Stock Activity

Balance at End of Year

Additional Paid-In Capital

Balance at Beginning of Year

Common Stock Activity

Cumulative Effect of Accounting Principle Change — Note 1

Balance at End of Year

Accumulated Other Comprehensive Income

Balance at Beginning of Year

Change During Year

Cumulative Effect of Accounting Principle Change — Note 1

Balance at End of Year

Retained Earnings

Balance at Beginning of Year

Net Income

Dividends to Stockholders ($0.30 per common share)

Cumulative Effect of Accounting Principle Changes — Note 1

Balance at End of Year

Treasury Stock

Balance at Beginning of Year

Purchases of Treasury Stock

Balance at End of Year

Deferred Compensation

Balance at Beginning of Year

Cumulative Effect of Accounting Principle Change — Note 1

Balance at End of Year

Total Stockholders’ Equity at End of Year

See notes to consolidated financial statements.

Year Ended December 31

2008

2007

2006

$ 36.3

$ 34.4

$ 30.1

—

36.3

2,516.9

30.0

—

1.9

36.3

2,200.0

316.9

—

4.3

34.4

1,627.9

585.9

(13.8)

2,546.9

2,516.9

2,200.0

463.5

(1,421.7)

—

(958.2)

612.8

(149.3)

—

463.5

1,163.5

(466.6)

(84.1)

612.8

5,077.4

4,925.8

4,610.4

553.2

(103.5)

—

679.3

(105.2)

(422.5)

411.0

(95.6)

—

5,527.1

5,077.4

4,925.8

(54.2)

(700.0)

(754.2)

—

(54.2)

—

(54.2)

—

(54.2)

—

(54.2)

(13.8)

13.8

—

$ 6,397.9

$8,039.9

$7,718.8

69081_2008AR_FIN.indd 97

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Unum
Unum
2008
2008

Consolidated Statements of Cash Flows

(in millions of dollars)

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 Tax Liabilities

Change in Other Accrued Liabilities

Non-cash Adjustments to Net Investment Income

Net Realized Investment (Gain) Loss

Depreciation

Cash Received from Reinsurance Recapture

Other, Net

Net Cash Provided by Operating Activities

Cash Flows from Investing Activities

Proceeds from Sales of Available-for-Sale Securities

Proceeds from Maturities of Available-for-Sale Securities

Pro ceeds from Sales and Maturities of Other Investments

Purchase of Available-for-Sale Securities

Purchase of Other Investments

Net Sales (Purchases) of Short-term Investments

Acquisition of Business

Disposition of Business

Other, Net

Net Cash Used by Investing Activities

Cash Flows from Financing Activities

Maturities and Benefit Payments from Policyholder Accounts

Net Short-term Debt Repayments

Issuance of Long-term Debt

Long-term Debt Repayments

Cost Related to Early Retirement of Debt

Issuance of Common Stock

Dividends Paid to Stockholders

Purchases of Treasury Stock

Other, Net

Net Cash Provided (Used) by Financing Activities

Effect of Foreign Exchange Rate Changes on Cash

Net Increase (Decrease) in Cash and Bank Deposits

Cash and Bank Deposits at Beginning of Year

Cash and Bank Deposits at End of Year

See notes to consolidated financial statements.

Year Ended December 31

2008

2007

2006

$ 553.2

$ 679.3

$ 411.0

77.2

(71.8)

717.5

(84.3)

(93.5)

(306.7)

465.9

68.8

—

(0.2)

235.5

(75.9)

887.2

114.8

(119.8)

(363.6)

65.2

66.2

211.4

50.0

65.2

(49.6)

1,440.5

(67.4)

(120.8)

(370.0)

(2.2)

72.5

—

52.7

1,326.1

1,750.3

1,431.9

2,066.1

1,288.0

205.6

2,179.3

1,171.4

312.9

1,990.5

1,364.0

323.3

(4,083.7)

(4,205.2)

(4,050.2)

(291.2)

432.8

48.8

—

(91.1)

(488.8)

(836.2)

—

98.8

(87.2)

(561.0)

(225.4)

—

(63.2)

(424.7)

(1,855.0)

(1,222.0)

(10.2)

(134.5)

—

(105.9)

(0.4)

4.4

(103.5)

(700.0)

0.6

(1,049.5)

(1.1)

(149.2)

199.1

(5.7)

—

800.0

(769.5)

(34.2)

307.8

(105.2)

—

(12.0)

181.2

1.3

77.8

121.3

(7.2)

—

130.0

(732.0)

(17.9)

580.0

(95.6)

—

(14.3)

(157.0)

1.3

54.2

67.1

$ 49.9

$ 199.1

$ 121.3

69081_2008AR_FIN.indd 98

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Consolidated Statements of Cash Flows

Consolidated Statements of Comprehensive Income (Loss)

Unum 2008

(in millions of dollars)

Net Income

Other Comprehensive Income (Loss)

Change in Net Unrealized Gains and Losses on Securities Before

Year Ended December 31

2008

2007

2006

$ 553.2

$ 679.3

$ 411.0

Reclassification Adjustment (net of tax benefit of $1,274.2; $134.6; $323.3)

(2,394.5)

(248.8)

(613.0)

Reclassification Adjustment for Net Realized Investment (Gain) Loss

(net of tax expense (benefit) of $59.5; $0.2; $(0.3))

114.8

0.3

(0.6)

Change in Net Gain on Cash Flow Hedges

(net of tax expense (benefit) of $139.0; $(6.0); $(39.8))

276.0

(11.7)

(79.1)

Change in Adjustment to Reserves for Future Policy and Contract Benefits,

Net of Reinsurance and Other (net of tax expense of $578.1; $34.0; $50.5)

1,091.0

69.8

107.7

Change in Foreign Currency Translation Adjustment

(net of tax benefit of $—; $—; $0.3)

Change in Unrecognized Pension and Postretirement Benefit Costs

(net of tax expense (benefit) of $(112.4); $16.7; $11.3)

Total Other Comprehensive Loss

Comprehensive Income (Loss)

See notes to consolidated financial statements.

(301.0)

7.4

(208.0)

33.7

(1,421.7)

(149.3)

$ (868.5)

$ 530.0

93.6

24.8

(466.6)

$ (55.6)

69081_2008AR_FIN.indd 99

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Unum
Unum
2008
2008

Notes To Consolidated Financial Statements

Note 1. Significant Accounting Policies

Basis of Presentation: The accompanying consolidated financial statements of Unum Group and its subsidiaries (the Company) have

been prepared in accordance with U.S. generally accepted accounting principles (GAAP). Such accounting principles differ from statutory

accounting principles (see Note 15). Intercompany transactions have been eliminated.

In March 2007, we closed the sale of our wholly-owned subsidiary GENEX Services, Inc. (GENEX). The financial results of GENEX are

reported as discontinued operations in the consolidated financial statements. Except where noted, the information presented in the notes to

the consolidated financial statements excludes GENEX. See Note 2 for further discussion.

Freestanding derivatives with positive fair values are reported on our consolidated balance sheets at fair value as assets within other

long-term investments, and those with negative fair values are carried as liabilities within other liabilities. Embedded derivatives, excluding

those associated with modified coinsurance arrangements, are reported on the consolidated balance sheets at fair value with the host

contract. The embedded derivatives associated with modified coinsurance contracts are reported at fair value as either other long-term

investments or other liabilities in the consolidated balance sheets. We previously reported our freestanding derivatives and our embedded

derivatives related to reinsurance contracts on a net basis within fixed maturity securities. We have increased fixed maturity securities,

other long-term investments, and other liabilities $160.0 million, $109.2 million, and $269.2 million, respectively, at December 31, 2007 to

conform to the current year presentation.

Description of Business: We are the largest provider of group and individual disability products in the United States and the United

Kingdom. We also provide a complementary portfolio of other insurance products, including long-term care insurance, life insurance,

employer- and employee-paid group benefits, and other related services. We market our products primarily to employers interested in

providing benefits to their employees.

We have three major business segments: Unum US, Unum UK, and Colonial Life. Our other segments are the Individual Disability —

Closed Block segment and the Corporate and Other segment. See Note 13 for further discussion of our operating segments.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions

that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the

future as more information becomes known, which could impact the amounts reported and disclosed herein.

Many factors influence the assumptions upon which reserves for policy and contract benefits are based, including historical trends

in our experience and expected deviations from historical experience. Considerable judgment is required to interpret actual historical

experience and to assess the future factors that are likely to influence the ultimate cost of settling existing claims. Given that insurance

products contain inherent risks and uncertainties, the ultimate liability may be more or less than such estimates indicate.

Investments: Investments are reported in our consolidated balance sheets as follows:

Fixed Maturity Securities, which include bonds and redeemable preferred stocks classified as available-for-sale, are reported at fair value.

Interest income is recorded as part of net investment income when earned, using an effective yield method giving effect to amortization of

premium and accretion of discount. Payment terms specified for fixed maturity securities may include a prepayment penalty for unscheduled

payoff of the investment. Prepayment penalties are recognized as investment income when received.

Included within fixed maturity securities are mortgage-backed and asset-backed securities. We recognize investment income on these

securities using a constant effective yield based on projected prepayments of the underlying loans and the estimated economic life of the

securities. Actual prepayment experience is reviewed periodically, and effective yields are recalculated when differences arise between

prepayments originally projected and the actual prepayments received and currently projected. The effective yield is recalculated on a

retrospective basis, and the adjustment is reflected in net investment income.

Fixed maturity securities not bought and held for the purpose of selling in the near term but for which we do not have the positive intent

and ability to hold to maturity are classified as available-for-sale. Changes in the fair value of available-for-sale fixed maturity securities are

reported as a component of other comprehensive income. These amounts are net of income tax and valuation adjustments to deferred

acquisition costs and reserves for future policy and contract benefits which would have been recorded had the related unrealized gain or loss

on these securities been realized.

100

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Notes To Consolidated Financial Statements

Unum 2008

Mortgage Loans are generally carried at amortized cost less an allowance for probable losses. Interest income is accrued on the principal

amount of the loan based on the loan’s contractual interest rate. Payment terms specified for mortgage loans may include a prepayment penalty

for unscheduled payoff of the investment. Prepayment penalties are recognized as investment income when received.

Policy Loans are presented at unpaid balances directly related to policyholders. Interest income is accrued on the principal amount of

the loan based on the loan’s contractual interest rate. Included in policy loans are $2,555.6 million and $2,422.0 million of policy loans ceded

to reinsurers at December 31, 2008 and 2007, respectively.

Other Long-term Investments are comprised primarily of freestanding derivatives with a net positive fair value and private equity fund

limited partnerships. For determining whether the fair value of freestanding derivatives is a net positive, the derivatives are grouped by

counterparty for which a master netting agreement has been executed. Private equity fund limited partnerships are generally carried at

cost plus our share of changes in the investee’s ownership equity since acquisition.

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.

We discontinue the accrual of investment income on invested assets when collection is uncertain. We recognize investment income

on impaired investments when the income is received.

Realized investment gains and losses, which are reported as a component of revenue in the consolidated statements of income, are

based upon specific identification of the investments sold and do not include amounts allocable to separate accounts. At the time a decline

in the value of an investment is determined to be other than temporary, a loss is recorded which is included in realized investment gains

and losses.

Cash and Bank Deposits: Cash and bank deposits include cash on hand and non-interest bearing cash and deposit accounts.

Derivative Financial Instruments: We recognize all of our derivative instruments (including certain derivative instruments embedded

in other contracts) as either assets or liabilities in our consolidated balance sheets and measure those instruments at fair value.

The accounting for changes in the fair value (i.e., gain or loss) of a derivative depends on whether it has been designated and qualifies

as part of a hedging relationship, and further, on the type of hedging relationship. To qualify as a hedging instrument, a derivative must pass

prescribed effectiveness tests, performed quarterly using both qualitative and quantitative methods. For those derivatives that are designated

and qualify as hedging instruments, the derivative is designated, based upon the exposure being hedged, as one of the following:

Fair value hedge. Changes in the fair value of the derivative as well as the offsetting change in fair value on the hedged item attributable

to the risk being hedged are recognized in current earnings during the period of change in fair value. The gain or loss on the termination

of an effective fair value hedge is recognized in current earnings.

Cash flow hedge. To the extent it is effective, changes in the fair value of the derivative are reported in other comprehensive income

and reclassified into earnings in the same period or periods during which the hedged item affects earnings. The ineffective portion

of the hedge, if any, is recognized in current earnings during the period of change in fair value. The gain or loss on the termination of an

effective cash flow hedge is reported in other comprehensive income and reclassified into earnings in the same period or periods

during which the hedged item affects earnings.

Foreign currency exposure hedge. To the extent it is effective, changes in the fair value of the derivative are reported in other

comprehensive income as part of the foreign currency translation adjustment and reclassified into earnings in the same period or

periods during which remeasurement of the hedged foreign currency asset affects earnings. The ineffective portion of the hedge, if

any, is recognized in current earnings during the period of change in fair value. The gain or loss on the termination of an effective

foreign currency exposure hedge is reported in other comprehensive income as part of the foreign currency translation adjustment

and reclassified into earnings in the same period or periods during which remeasurement of the hedged foreign currency asset

affects earnings.

101

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Unum
2008

Notes To Consolidated Financial Statements

Gains or losses on the termination of ineffective hedges are reported in current earnings. In the event a hedged item is disposed of or

the anticipated transaction being hedged is no longer likely to occur, we will terminate the related derivative and recognize the gain or loss

on termination in current earnings.

For a derivative not designated as a hedging instrument, the change in fair value is recognized in earnings during the period of

change. We report changes in the fair values of certain embedded derivatives as realized investment gains and losses during the period of

change, as required under the provisions of Statement of Financial Accounting Standards No. 133 Implementation Issue B36 (DIG Issue B36),

Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposure That Are Unrelated

or Only Partially Related to the Creditworthiness of the Obligor Under Those Instruments.

Reinsurance Recoverable: We routinely cede reinsurance to other insurance companies. For ceded reinsurance agreements wherein

we are not relieved of our legal liability to our policyholders, we report assets and liabilities on a gross basis. Our reinsurance recoverable

includes the balances due from reinsurers under the terms of these reinsurance agreements for ceded policy and contract benefits, ceded

future policy and contract benefits, and ceded unearned premiums, less ceded policy loans.

Deferred Acquisition Costs: Certain costs of acquiring new business that vary with and are primarily related to the production of new

business have been deferred. Such costs include commissions, other agency compensation, certain selection and policy issue expenses,

and certain field expenses. Acquisition costs that do not vary with the production of new business, such as commissions on group products

which are generally level throughout the life of the policy, are excluded from deferral. Deferred acquisition costs are subject to recoverability

testing at the time of policy issue and loss recognition testing subsequent to the year of issue.

Deferred acquisition costs related to traditional policies are amortized over the premium paying period of the related policies in

proportion to the ratio of the present value of annual expected premium income to the present value of total expected premium income.

Such amortization is adjusted annually to reflect the actual policy persistency as compared to the anticipated experience.

Deferred acquisition costs related to interest-sensitive policies are amortized over the lives of the policies in relation to the present

value of estimated gross profits from surrender charges, mortality margins, investment returns, and expense margins. Adjustments are

made each year to reflect actual experience for assumptions which deviate significantly compared to anticipated experience.

Internal replacement transactions wherein the modification does not substantially change the policy are accounted for as continuations

of the replaced contracts. Unamortized deferred acquisition costs from the original policy continue to be amortized over the expected life

of the new policy, and the costs of replacing the policy are accounted for as policy maintenance costs and expensed as incurred. Internal

replacement transactions, principally on group contracts, that result in a policy that is substantially changed are accounted for as an

extinguishment of the original policy and the issuance of a new policy. Unamortized deferred acquisition costs on the original policy that

was replaced are immediately expensed, and the costs of acquiring the new policy are capitalized and amortized in accordance with our

accounting policies for deferred acquisition costs.

Loss recognition is generally performed on an annual basis. Insurance contracts are grouped for each major product line within a

segment when we perform the loss recognition tests. If loss recognition testing indicates that deferred acquisition costs are not recoverable,

the deficiency is charged to expense. The assumptions used in loss recognition testing represent our best estimates of future experience.

Goodwill: Goodwill is the excess of the amount paid to acquire a business over the fair value of the net assets acquired. We review the

carrying amount of goodwill for impairment during the fourth quarter of each year or more frequently if events or changes in circumstances

indicate that the carrying amount might not be recoverable. Goodwill impairment testing compares the fair value of a reporting unit with its

carrying amount, including goodwill. The fair values of the reporting units are determined using discounted cash flow models. The critical

estimates necessary in determining fair value are projected earnings and the discount rate. We set our discount rate assumption based on

an expected risk adjusted cost of capital. If the fair value of the reporting unit to which the goodwill relates is less than the carrying amount

of the unamortized goodwill, the carrying amount is reduced with a corresponding charge to expense.

Property and Equipment: Property and equipment is reported at cost less accumulated depreciation, which is calculated on the

straight-line method over the estimated useful life. The accumulated depreciation for property and equipment was $563.7 million and

$539.8 million as of December 31, 2008 and 2007, respectively.

102

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Notes To Consolidated Financial Statements

Unum 2008

Value of Business Acquired: Value of business acquired represents the present value of future profits recorded in connection with the

acquisition of a block of insurance policies. The asset is amortized based upon expected future premium income for traditional insurance

policies and estimated future gross profits for interest-sensitive insurance policies. The value of business acquired, which is included in other

assets in the consolidated balance sheets, was $50.5 million and $71.2 million at December 31, 2008 and 2007, respectively. The accumulated

amortization for value of business acquired was $92.2 million and $110.9 million as of December 31, 2008 and 2007, respectively. The

amortization of value of business acquired, which is included in other expenses in the consolidated statements of income, was $7.8 million,

$7.9 million, and $8.0 million for the years ended December 31, 2008, 2007, and 2006, respectively. We periodically review the carrying

amount of value of business acquired using the same methods used to evaluate deferred acquisition costs.

Policy and Contract Benefits: Policy and contract benefits represent amounts paid and expected to be paid based on reported losses

and estimates of incurred but not reported losses for traditional life and accident and health products. For interest-sensitive products,

benefits are the amounts paid and expected to be paid on insured claims in excess of the policyholders’ policy fund balances.

Policy and Contract Benefits Liabilities: Policy reserves represent future policy and contract benefits for claims not yet incurred.

Policy reserves for traditional life and accident and health products are determined using the net level premium method. The reserves are

calculated based upon assumptions as to interest, persistency, morbidity, and mortality that were appropriate at the date of issue. Interest

rate assumptions are based on actual and expected net investment returns. Persistency assumptions are based on our actual historical

experience adjusted for future expectations. Morbidity and mortality assumptions are based on actual experience or industry standards

adjusted as appropriate to reflect our actual experience and future expectations. The assumptions vary by plan, year of issue, and policy

duration and include a provision for adverse deviation.

Policy reserves for group single premium annuities have been provided on a net single premium method. The reserves are calculated

based on assumptions as to interest, mortality, and retirement that were appropriate at the date of issue. Mortality assumptions are based upon

industry standards adjusted as appropriate to reflect our actual experience and future expectations. The assumptions vary by year of issue.

Policy reserves for interest-sensitive products are principally policyholder account values.

We perform loss recognition tests on our policy reserves annually, or more frequently if appropriate, using best estimate assumptions

as of the date of the test, without a provision for adverse deviation. We group the policy reserves for each major product line within a

segment when we perform the loss recognition tests. If the policy reserves determined using these best estimate assumptions are higher

than our existing policy reserves net of any deferred acquisition cost balance, the existing policy reserves are increased or deferred acquisition

costs are reduced to immediately recognize the deficiency.

Claim reserves represent future policy and contract benefits for claims that have been incurred or are estimated to have been incurred

but not yet reported to us. Our claim reserves relate primarily to disability policies and are calculated based on assumptions as to interest

and claim resolution rates that are currently appropriate. Claim resolution rate assumptions are based on our actual experience. The interest

rate assumptions used for discounting claim reserves are based on projected portfolio yield rates, after consideration for defaults and

investment expenses, for the assets supporting the liabilities for the various product lines. Unlike policy reserves, claim reserves are subject

to revision as current claim experience and projections of future experience change.

Policyholders’ Funds: Policyholders’ funds represent customer deposits plus interest credited at contract rates. We control interest

rate risk by investing in quality assets which have an aggregate duration that closely matches the expected duration of the liabilities.

Income Tax: Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities

for financial statement purposes and the amounts used for income tax purposes. Deferred taxes have been measured using enacted statutory

income tax rates and laws that are currently in effect. We record deferred tax assets for tax positions taken in the U.S. and other tax jurisdictions

based on our assessment of whether a position is more likely than not to be sustained upon examination based solely on its technical

merits. A valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be realized.

69081_2008AR_FIN.indd 103

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103

Unum
2008

Notes To Consolidated Financial Statements

Deferred Gain or Loss on Reinsurance: Where applicable, gains or losses on reinsurance transactions are deferred and amortized

into earnings based upon expected future premium income for traditional insurance policies and estimated future gross profits for interest-

sensitive insurance policies. The deferred gain on reinsurance included in other liabilities in our consolidated balance sheets at December 31,

2008 and 2007 was $150.0 million and $177.8 million, respectively.

Separate Accounts: The separate account amounts shown in our consolidated balance sheets represent contributions by contract

holders to variable-benefits and fixed-benefits pension plans. The contract purchase payments and the assets of the separate accounts are

segregated from other funds for both investment and administrative purposes. Contract purchase payments received under variable

annuity contracts are subject to deductions for sales and administrative fees. Also, the sponsoring companies of the separate accounts

receive management fees based on the net asset values of the separate accounts.

Treasury Stock: Treasury stock is reflected as a reduction of stockholders’ equity at cost.

Revenue Recognition: Traditional life and accident and health products are long duration contracts, and premium income is recognized

as revenue when due from policyholders. If the contracts are experience rated, the estimated ultimate premium is recognized as revenue

over the period of the contract. The estimated ultimate premium, which is revised to reflect current experience, is based on estimated claim

costs, expenses, and profit margins.

For interest-sensitive products, the amounts collected from policyholders are considered deposits, and only the deductions during the

period for cost of insurance, policy administration, and surrenders are included in revenue. Policyholders’ funds represent funds deposited

by contract holders and are not included in revenue.

Premium Tax Expense: Premium tax expense is included in other operating expenses in the consolidated statements of income. For the

years ended December 31, 2008, 2007, and 2006, premium tax expense was $133.2 million, $130.8 million, and $140.5 million, respectively.

Translation of Foreign Currency: Revenues and expenses of our foreign operations are translated at average exchange rates. Assets

and liabilities are translated at the rate of exchange on the balance sheet date. The translation gain or loss is generally reported in

accumulated other comprehensive income, net of deferred tax.

Accounting for Participating Individual Life Insurance: Participating policies issued by one of our subsidiaries prior to its 1986 conversion

from a mutual to a stock life insurance company will remain participating as long as the policies remain in force. A Participation Fund Account

(PFA) was established for the benefit of all such individual participating life and annuity policies and contracts. The assets of the PFA provide

for the benefit, dividend, and certain expense obligations of the participating individual life insurance policies and annuity contracts. The

PFA was $391.2 million and $362.0 million at December 31, 2008 and 2007, respectively, and represented approximately 0.8 and 0.7 percent

of consolidated assets and 0.8 percent of consolidated liabilities at December 31, 2008 and 2007, respectively.

Accounting Pronouncements Adopted: Effective January 1, 2008, we adopted the provisions of Statement of Financial Accounting

Standards No. 157 (SFAS 157), Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value, and

expands disclosures about fair value measurements. The adoption of SFAS 157 did not have a material effect on our financial position or

results of operations.

Effective December 31, 2008, we adopted the provisions of Financial Accounting Standards Board (FASB) Staff Position No. EITF 99-20-1,

(FSP EITF 99-20-1), Amendments to the Impairment Guidance of EITF Issue No. 99-20. This FSP amends the impairment guidance in Emerging

Issues Task Force (EITF) Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial

Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, to achieve more consistent determination of whether an

other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of an other-than-temporary impairment

assessment and the related disclosure requirements in Statement of Financial Accounting Standards No. 115, Accounting for Certain

Investments in Debt and Equity Securities, and other related guidance. The adoption of FSP EITF 99-20-1 did not have a material effect on

our financial position or results of operations.

104

69081_2008AR_FIN.indd 104

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Notes To Consolidated Financial Statements

Unum 2008

Effective January 1, 2007, we adopted the provisions of Statement of Position 05-1 (SOP 05-1), Accounting by Insurance Enterprises for

Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts. SOP 05-1 provides guidance on accounting

by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those

specifically described in Statement of Financial Accounting Standards No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-

Duration Contracts and for Realized Gains and Losses from the Sale of Investments. An internal replacement is defined as a modification

in product benefits, features, or coverages that occurs by the exchange or replacement of an existing insurance policy for a new policy. The

cumulative effect of applying the provisions of SOP 05-1 decreased our 2007 opening balance of retained earnings $445.2 million.

Effective January 1, 2007, we adopted the provisions of Financial Accounting Standards Board Interpretation No. 48 (FIN 48),

Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (SFAS 109). FIN 48 clarifies the accounting for

uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. Unlike SFAS 109, FIN 48

prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position

taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties,

accounting in interim periods, disclosure, and transition. The cumulative effect of applying the provisions of FIN 48 increased our 2007

opening balance of retained earnings $22.7 million.

Effective January 1, 2007, we adopted the provisions of Statement of Financial Accounting Standards No. 155 (SFAS 155), Accounting

for Certain Hybrid Financial Instruments, an amendment of Statement of Financial Accounting Standards Nos. 133 (SFAS 133) and 140

(SFAS 140). SFAS 155: (a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that

otherwise would require bifurcation; (b) clarifies which interest-only strips and principal-only strips are not subject to the requirements of

SFAS 133; (c) establishes a requirement to evaluate beneficial interests in securitized financial assets to identify interests that are freestanding

derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (d) clarifies that concentrations

of credit risk in the form of subordination are not embedded derivatives; and, (e) eliminates restrictions on a qualifying special-purpose

entity’s ability to hold passive derivative financial instruments that pertain to beneficial interests that are or contain a derivative financial

instrument. The adoption of SFAS 155 did not have a material effect on our financial position or results of operations.

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS 123(R)), Share-Based

Payment, which is a revision to Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation.

SFAS 123(R) focuses primarily on accounting for transactions in which an entity obtains employee service in exchange for share-based

payments. Under SFAS 123(R), share-based awards that do not require future service (i.e., vesting awards) are expensed immediately.

Share-based employee awards that require future service are amortized over the relevant service period. We adopted SFAS 123(R) using the

modified prospective transition method. In accordance with the modified prospective transition method, the provisions are generally applied

only to share-based awards granted subsequent to adoption. Prior to adoption of SFAS 123(R), the unrecognized compensation cost related

to nonvested stock awards was reported as additional paid-in capital and deferred compensation, a contra equity account. The value of this

contra equity account at the adoption of SFAS 123(R) was $13.8 million. The adoption of SFAS 123(R) did not have a material effect on our

financial position or results of operations.

Effective January 1, 2006, we adopted the provisions of FASB Staff Position No. FAS 115-1 (FSP 115-1), The Meaning of Other-Than-Temporary

Impairment and Its Application to Certain Investments, which addresses the determination of when an investment is considered impaired,

whether the impairment is other than temporary, and the measurement of an impairment loss. FSP 115-1 also includes accounting

considerations subsequent to the recognition of other-than-temporary impairment and requires certain disclosures about unrealized losses.

The adoption of FSP 115-1 did not have a material effect on our financial position or results of operations.

Effective December 31, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 158 (SFAS 158), Employers’

Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).

SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit pension and other postretirement

plans as an asset or liability in its balance sheet and to recognize changes in that funded status through comprehensive income. Also, under

SFAS 158, defined benefit pension and other postretirement plan assets and obligations are to be measured as of the date of the employer’s

fiscal year-end. The adoption of SFAS 158 resulted in the following adjustments to our balance sheet: a decrease in other assets of

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2008

Notes To Consolidated Financial Statements

$55.0 million, a decrease in deferred income tax of $40.3 million, an increase in other liabilities of $69.4 million, and a decrease in

accumulated other comprehensive income of $84.1 million. The adoption of SFAS 158 had no effect on our results of operations.

Accounting Pronouncements Outstanding: Statement of Financial Accounting Standards No. 161 (SFAS 161), Disclosures about Derivative

Instruments and Hedging Activities, an amendment of FASB Statement No. 133, was issued in March 2008. SFAS 161 is intended to improve

financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better

understand their effects on an entity’s financial position, financial performance, and cash flows. We will adopt the provisions of SFAS 161

effective January 1, 2009. The adoption of SFAS 161 will amend our disclosures but will have no effect on our financial position or results

of operations.

FASB Staff Position No. FAS 132(R)-1, (FSP FAS 132(R)-1), Employers’ Disclosures about Postretirement Benefit Plan Assets, was issued

December 30, 2008. This FSP amends Statement of Financial Accounting Standards No. 132 (revised 2003), Employers’ Disclosures about

Pensions and Other Postretirement Benefits, to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension

or other postretirement plan. The disclosures about plan assets required by this FSP are required for fiscal years ending after December 15,

2009. The adoption of FSP FAS 132(R)-1 will amend our disclosures but will have no effect on our financial position or results of operations.

Note 2. Discontinued Operations

As discussed in Note 1, the sale of GENEX closed effective March 1, 2007, and we recognized an after-tax gain of $6.2 million on the

sale, which is included in income from discontinued operations in our statements of income. We intend to continue to purchase certain

disability management services for a period of up to five years from the effective date of the sale. The cost of the services to be purchased

was negotiated in an arms-length transaction. Intercompany amounts paid to GENEX for these types of services were $2.3 million for the

two months ended February 28, 2007 and $15.4 million for the year ended December 31, 2006. The cost of these services is not significant

to our results of operations.

The results of GENEX are reported as discontinued operations and excluded from segment results for all applicable periods. Selected

results for GENEX are as follows:

(in millions of dollars, except share data)

Total Revenue

Income Per Common Share

Basic

Assuming Dilution

Year Ended December 31

2007

$47.2

$0.02

2006

$183.5

$0.02

Note 3. Fair Values of Financial Instruments

We use the following methods and assumptions in estimating the fair values of our financial instruments:

Fixed Maturity Securities: Fair values are based on quoted market prices, where available. For fixed maturity securities not actively

traded, fair values are generally estimated using values obtained from independent pricing services. For certain private placements, fair

values are estimated using internally prepared valuations combining matrix pricing with vendor purchased software programs, including

valuations based on estimates of future profitability. Additionally, we obtain prices from independent third-party brokers to establish

valuations for certain of these securities. See Note 4 for further discussion of fair value measurements.

Mortgage Loans: Fair values are estimated using discounted cash flow analyses and interest rates currently being offered for similar

loans to borrowers with similar credit ratings and maturities. Loans with similar characteristics are aggregated for purposes of the calculations.

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Notes To Consolidated Financial Statements

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Policy Loans: Fair values for policy loans, net of reinsurance ceded, are estimated using discounted cash flow analyses and interest

rates currently being offered to policyholders with similar policies. The carrying amounts of ceded policy loans of $2,555.6 million and

$2,422.0 million as of December 31, 2008 and 2007, respectively, are reported on a gross basis in the consolidated balance sheets and

approximate fair value.

Other Long-term Investments: Fair values for derivatives other than DIG Issue B36 derivatives are based on market quotes or pricing

models and represent the net amount of cash we would have received if the contracts had been settled or closed as of the last day of the

year. We do not net any cash collateral received from our counterparties against the fair value of our derivative instruments. Carrying

amounts approximate fair value for other long-term investments.

Policyholders’ Funds: Policyholders’ funds are comprised primarily of deferred annuity products and supplementary contracts without

life contingencies. The carrying amounts approximate fair value.

Fair values for insurance contracts other than investment contracts are not required to be disclosed. However, the fair values of

liabilities under all insurance contracts are taken into consideration in our overall management of interest rate risk, which minimizes

exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.

Short-term and Long-term Debt: Fair values are obtained from independent pricing services or discounted cash flow analyses based

on current incremental borrowing rates for similar types of borrowing arrangements.

Other Liabilities: Fair values for derivatives other than DIG Issue B36 derivatives are based on market quotes or pricing models and

represent the net amount of cash we would have paid if the contracts had been settled or closed as of the last day of the year. Fair values

for our DIG Issue B36 embedded derivative are estimated using internal pricing models and represent the hypothetical value of the duration

mismatch of assets and liabilities, interest rate risk, and third party credit risk embedded in the modified coinsurance arrangement.

The carrying values of financial instruments such as short-term investments, cash and bank deposits, accounts and premiums receivable,

accrued investment income, and accounts payable approximate the fair values due to the short-term nature of the instruments. As such,

these financial instruments are not included in the following chart.

(in millions of dollars)

Assets

Fixed Maturity Securities

Mortgage Loans

Policy Loans

Other Long-term Investments

Derivatives

Miscellaneous Long-term Investments

Liabilities

Policyholders’ Funds

December 31

2008

Carrying

Amount

Fair

Value

2007

Carrying

Amount

Fair

Value

$32,134.1

$35,814.7

1,274.8

2,753.8

381.8

138.3

1,224.4

2,811.0

381.8

138.3

1,068.9

2,617.7

109.2

122.9

1,079.8

2,650.7

109.2

122.9

Deferred Annuity Products

$ 746.4

$ 855.8

Supplementary Contracts without Life Contingencies

Short-term Debt

Long-term Debt

Other Liabilities

Derivatives

DIG Issue B36 Embedded Derivative

402.5

190.5

2,259.4

79.4

360.5

402.5

188.9

1,677.4

79.4

360.5

411.5

175.0

2,515.2

200.4

68.8

411.5

175.3

2,673.8

200.4

68.8

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2008

Notes To Consolidated Financial Statements

Note 4. Investments

Fixed Maturity Securities

The amortized cost and fair values of securities by security type are shown as follows.

(in millions of dollars)

Available-for-Sale Securities

United States Government and

December 31, 2008

Amoritized

Gross

Cost

Unrealized Gain

Unrealized Loss

Fair

Value

Government Agencies and Authorities

$ 1,591.9

$ 194.9

$ 62.6

$ 1,724.2

States, Municipalities, and Political Subdivisions

Foreign Governments

Public Utilities

Mortgage/Asset-Backed Securities

All Other Corporate Bonds

Redeemable Preferred Stocks

Total Fixed Maturity Securities

(in millions of dollars)

Available-for-Sale Securities

United States Government and

167.7

945.7

5,896.2

3,691.7

21,728.7

385.7

3.5

112.0

105.1

308.9

553.8

—

6.6

12.2

593.9

55.1

2,643.7

177.6

164.6

1,045.5

5,407.4

3,945.5

19,638.8

208.1

$34,407.6

$1,278.2

$3,551.7

$32,134.1

December 31, 2007

Amoritized

Gross

Cost

Unrealized Gain

Unrealized Loss

Fair

Value

Government Agencies and Authorities

$ 2,329.0

$ 133.5

$ 28.6

$ 2,433.9

States, Municipalities, and Political Subdivisions

Foreign Governments

Public Utilities

Mortgage/Asset-Backed Securities

All Other Corporate Bonds

Redeemable Preferred Stocks

Total Fixed Maturity Securities

40.4

1,086.4

5,113.8

4,006.8

21,653.3

398.4

0.9

116.2

239.8

237.6

1,152.9

17.7

—

6.4

117.8

6.9

521.0

31.3

41.3

1,196.2

5,235.8

4,237.5

22,285.2

384.8

$34,628.1

$1,898.6

$712.0

$35,814.7

Of the $3,551.7 million in gross unrealized losses on fixed maturity securities at December 31, 2008, $2,883.7 million, or 81.2 percent,

are related to investment-grade fixed maturity securities. Unrealized losses on investment-grade fixed maturity securities principally relate

to changes in interest rates or changes in market or sector credit spreads which occurred subsequent to the acquisition of the securities.

The gross unrealized loss on below-investment-grade fixed maturity securities was $668.0 million at December 31, 2008, or 18.8 percent,

of the total gross unrealized loss on fixed maturity securities. Generally, below-investment-grade fixed maturity securities are more likely to

develop credit concerns.

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Notes To Consolidated Financial Statements

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The following charts indicate the length of time our fixed maturity securities had been in a gross unrealized loss position as of

December 31, 2008 and 2007.

(in millions of dollars)

Description

United States Government and

December 31, 2008

Less Than 12 Months

12 Months or Greater

Gross

Fair Value

Unrealized Loss

Fair Value

Unrealized Loss

Government Agencies and Authorities

$ 341.7

$ 29.1

$ 300.1

$ 33.5

States, Municipalities, and Political

Subdivisions

Foreign Governments

Public Utilities

Mortgage/Asset-Backed Securities

All Other Corporate Bonds

Redeemable Preferred Stocks

87.7

325.8

2,209.4

124.7

7,805.8

102.1

5.2

12.0

264.6

14.2

1,081.0

62.6

3.6

11.4

1,531.9

221.4

5,461.6

103.7

1.4

0.2

329.3

40.9

1,562.7

115.0

Total

$10,997.2

$1,468.7

$7,633.7

$2,083.0

(in millions of dollars)

Description

United States Government and

December 31, 2007

Less Than 12 Months

12 Months or Greater

Gross

Fair Value

Unrealized Loss

Fair Value

Unrealized Loss

Government Agencies and Authorities

$ —

$ 840.4

$ 28.6

Foreign Governments

Public Utilities

Mortgage/Asset-Backed Securities

All Other Corporate Bonds

Redeemable Preferred Stocks

Total

128.8

983.7

218.7

3,245.0

91.7

$4,667.9

1.9

26.0

1.7

125.8

8.1

337.2

1,521.1

270.1

6,273.2

106.5

4.5

91.9

5.2

395.1

23.2

$163.5

$9,348.5

$548.5

As of December 31, 2008, we held 644 individual investment-grade fixed maturity securities and 125 individual below-investment-

grade fixed maturity securities that were in an unrealized loss position, of which 342 investment-grade fixed maturity securities and

68 below-investment-grade fixed maturity securities had been in an unrealized loss position continuously for over one year.

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109

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2008

Notes To Consolidated Financial Statements

In determining when a decline in fair value below amortized cost of a fixed maturity security is other than temporary, we evaluate the

following factors:

• The probability of recovering principal and interest.

• Our ability and intent to retain the security for a sufficient period of time for it to recover.

• Whether the security is current as to principal and interest payments.

• The significance of the decline in value.

• The time period during which there has been a significant decline in value.

• 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 actions.

• Bid and offering prices and the level of trading activity.

• Adverse changes in estimated cash flows for securitized investments.

• Any other key measures for the related security.

If we determine that the decline in value of an investment is other than temporary, the investment is written down to fair value, and

an impairment loss is recognized in the current period to the extent of the decline in value. For those fixed maturity securities with an

unrealized loss and on which we have not recorded an impairment write-down, we believe that the decline in fair value below amortized

cost is temporary.

The amortized cost and fair values of fixed maturity securities by maturity date are shown as follows. The maturity dates have not

been adjusted for possible calls or prepayments.

(in millions of dollars)

Available-for-Sale Securities

1 year or less

Over 1 year through 5 years

Over 5 years through 10 years

Over 10 years

Mortgage/Asset-Backed Securities

Total

December 31, 2008

Amortized

Cost

Fair

Value

$ 365.8

$ 367.4

3,889.9

9,232.0

17,228.2

30,715.9

3,691.7

3,752.8

8,225.5

15,842.9

28,188.6

3,945.5

$34,407.6

$32,134.1

At December 31, 2008, the total investment in below-investment-grade fixed maturity securities was $1,633.9 million or 4.6 percent

of the fair value of invested assets excluding ceded policy loans. The amortized cost of these securities was $2,300.6 million.

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We are the sole beneficiary of two special purpose entities which support our investment objectives and which are consolidated

under the provisions of Interpretation No. 46 (FIN 46(R)), Consolidation of Variable Interest Entities, an Interpretation of Accounting

Research Bulletin (ARB) No. 51. These entities are securitized asset trusts and contain specific financial instruments that do not include our

common stock or debt. One of these entities is a trust holding forward contracts to purchase unrelated equity securities. This trust also

holds a defeasance swap contract for highly rated bonds to provide principal protection for the investments. There are no restrictions on

the assets held in this trust, and the trust is free to dispose of the assets at any time. We have not previously provided financial or other

support to this trust and do not anticipate any need to do so in the future. The fair values of the underlying forward and swap contracts

equaled $50.3 million as of December 31, 2008, and are reported as fixed maturity securities in the consolidated balance sheets.

The second entity is a trust containing a highly rated bond for principal protection, non-redeemable preferred stock, and several

partnership equity investments. We contributed the bond and partnership investments into the trust at the time it was established. The

purpose of this trust is to allow us to maintain our investment in the partnerships while at the same time protecting the principal of the

investment. There are no restrictions on the assets held in this trust, and the trust is free to dispose of the assets at any time. Because the

assets in the trust are not liquid investments, we periodically provide funding to the underlying partnerships in the trust upon satisfaction

of contractual notice from the partnerships. At December 31, 2008, we had commitments to fund approximately $1.9 million to the

underlying partnerships. These amounts may or may not be funded during the life of the partnerships. The amount of funding provided to

the partnerships was $0.6 million in 2006 and de minimis during 2008 and 2007. The fair values of the bond, non-redeemable preferred

stock, and partnerships were $85.6 million, $0.6 million, and $13.7 million, respectively, as of December 31, 2008. The bonds are reported

as fixed maturity securities, and the non-redeemable preferred stock and partnerships are reported as other long-term investments in

the consolidated balance sheets.

We have a significant investment in, but are not the primary beneficiary of, a special purpose entity which is a collateralized bond

obligation asset trust (CBO) in which we hold interests in several of the tranches and for which we act as investment manager of the

underlying securities. We issued the CBO in 1998, and its purpose is to securitize high yield bonds and earn a spread over the cost of the

funds from the different tranches issued. In determining whether we are the primary beneficiary under the consolidation requirements

of FIN 46(R), we projected the expected cash flows generated by the underlying assets in the trust using various interest rate and credit

quality assumptions and assigned the projected cash flows to the various beneficiaries of the trust in accordance with the legal terms set

forth by the trust agreement. Based on our analysis, we determined that we were not the primary beneficiary as we would not absorb

the majority of the trust’s expected losses or receive the majority of its expected residual gains. The outstanding balance of all tranches

at December 31, 2008 was $75.7 million, $39.1 million of which is held by third parties with no recourse against us. We provide no

financial or other support to the trust, other than acting as investment manager of the underlying securities. The total fair value of the

underlying securities in the CBO was $5.5 million at December 31, 2008. The fair value of our investment in the CBO, and therefore our

maximum exposure to loss, was $2.5 million at December 31, 2008. This investment is reported as a fixed maturity security in the

consolidated balance sheets.

At December 31, 2008, we had commitments of approximately $35.9 million to fund certain of our private placement securities. The funds

are due upon satisfaction of contractual notice from the issuer. These amounts may or may not be funded during the term of the securities.

In the normal course of business, we receive collateral from unaffiliated third parties through transactions which include both securities

lending and also short-term agreements to purchase securities with the agreement to resell them at a later, specified date. For both types

of transactions, we require that a minimum of 102 percent of the fair value of the securities loaned or securities purchased under repurchase

agreements be maintained as collateral. Generally, cash is received as collateral under these agreements. In the event that securities are received

as collateral, we are not permitted to sell or re-post them. We also post our fixed maturity securities as collateral to unaffiliated third parties

through transactions including both securities lending and also short-term agreements to sell securities with the agreement to repurchase

them at a later, specified date. At December 31, 2008, the carrying value of fixed maturity securities posted as collateral to third parties under

these programs was $80.6 million. See Note 5 for discussion of collateral posted to our derivatives counterparties.

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Notes To Consolidated Financial Statements

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2008

Mortgage Loans

At December 31, 2008, mortgage loans were collateralized by office buildings (39.8 percent), industrial buildings (30.5 percent), retail

stores (17.6 percent), and other properties (12.1 percent). Our mortgage loan portfolio is geographically dispersed within the United

States, with the largest concentrations in California (13.2 percent) and Pennsylvania (11.5 percent).

Mortgage loans are impaired when, based on current information and events, it is probable that we will be unable to collect all amounts

due according to the contractual terms of the loan agreement. At December 31, 2008, impaired mortgage loans totaled $5.2 million. We had

no impaired mortgage loans at December 31, 2007 and no valuation allowance for mortgage loans at December 31, 2008 or 2007. We had

deductions of $0.5 million and increases of $0.5 million to the allowance for mortgage loans during 2007 and 2006, respectively.

At December 31, 2008, we had commitments of approximately $4.1 million for commercial mortgage loan originations. The funds will

be due at closing of the mortgage loans.

Net Investment Income

Sources for net investment income are as follows:

(in millions of dollars)

Fixed Maturity Securities

Derivative Financial Instruments

Mortgage Loans

Policy Loans

Other Long-term Investments

Short-term Investments

Gross Investment Income

Less Investment Expenses

Less Investment Income on PFA Assets

Net Investment Income

Realized Investment Gain and Loss
Realized investment gains (losses) are as follows:

(in millions of dollars)

Fixed Maturity Securities

Gross Gains

Gross Losses

Mortgage Loans and Other Invested Assets

Change in Fair Value of DIG Issue B36 Derivative

Derivatives other than DIG Issue B36

Realized Investment Gain (Loss)

112

Year Ended December 31

2008

2007

2006

$2,277.0

$2,297.4

$2,234.5

15.1

72.0

13.0

15.5

40.7

17.8

64.3

12.7

7.3

49.5

27.5

54.6

12.6

9.4

21.0

2,433.3

2,449.0

2,359.6

25.8

18.5

17.0

22.1

21.0

18.0

$2,389.0

$2,409.9

$2,320.6

Year Ended December 31

2008

2007

2006

$ 64.9

(231.9)

(5.3)

(291.7)

(1.9)

$ 56.0

(82.8)

19.0

(57.3)

(0.1)

$ 68.3

(71.1)

10.3

(5.3)

—

$(465.9)

$(65.2)

$ 2.2

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Notes To Consolidated Financial Statements

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Fair Value Measurements

Effective January 1, 2008, we adopted the provisions of SFAS 157, which are intended to increase consistency and comparability

among fair value estimates used in financial reporting. SFAS 157 does not require any new fair value measurements. SFAS 157 clarifies

a number of considerations with respect to fair value measurement objectives for financial reporting and expands disclosure about the

use of fair value measurements, with particular emphasis on the inputs used to measure fair value. The disclosures required by SFAS 157

are intended to provide users of the financial statements the ability to assess the reliability of an entity’s fair value measurements. The

adoption of SFAS 157 did not materially change the approach or methods we utilize for determining fair value measurements or the fair

values derived under those methods.

Definition of Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between

market participants at the measurement date and, therefore, represents an exit price, not an entry price. The exit price objective applies

regardless of a reporting entity’s intent and/or ability to sell the asset or transfer the liability at the measurement date.

The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing

observability. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively

quoted prices in active markets generally have more pricing observability and less judgment utilized in measuring fair value. An active

market for a financial instrument is a market in which transactions for an asset or a similar asset occur with sufficient frequency and

volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of

fair value and should be used to measure fair value whenever available. Conversely, financial instruments rarely traded or not quoted

have less observability and are measured at fair value using valuation techniques that require more judgment. Pricing observability is

generally impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the

market and not yet established, the characteristics specific to the transaction, and overall market conditions.

Valuation Techniques

Valuation techniques used for assets and liabilities accounted for at fair value are generally categorized into three types:

1. The market approach uses prices and other relevant information from market transactions involving identical or comparable

assets or liabilities. Valuation techniques consistent with the market approach often use market multiples derived from a set of

comparables or matrix pricing. Market multiples might lie in ranges with a different multiple for each comparable. The selection

of where within the range the appropriate multiple falls requires judgment, considering both quantitative and qualitative factors

specific to the measurement. Matrix pricing is a mathematical technique used principally to value certain securities without relying

exclusively on quoted prices for the specific securities but comparing the securities to benchmark or comparable securities.

2. The income approach converts future amounts, such as cash flows or earnings, to a single present amount, or a discounted

amount. Income approach techniques rely on current market expectations of future amounts. Examples of income approach

valuation techniques include present value techniques, option-pricing models that incorporate present value techniques, and

the multi-period excess earnings method.

3. The cost approach is based upon the amount that currently would be required to replace the service capacity of an asset, or the current

replacement cost. That is, from the perspective of a market participant (seller), the price that would be received for the asset is

determined based on the cost to a market participant (buyer) to acquire or construct a substitute asset of comparable utility.

We use valuation techniques that are appropriate in the circumstances and for which sufficient data are available that can be obtained

without undue cost and effort. In some cases, a single valuation technique will be appropriate (for example, when valuing an asset or liability

using quoted prices in an active market for identical assets or liabilities). In other cases, multiple valuation techniques will be appropriate. If we

use multiple valuation techniques to measure fair value, we evaluate and weigh the results, as appropriate, considering the reasonableness

of the range indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in

the circumstances.

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Unum
2008

Notes To Consolidated Financial Statements

The selection of the valuation method(s) to apply considers the definition of an exit price and depends on the nature of the asset or

liability being valued. For assets and liabilities accounted for at fair value, we generally use valuation techniques consistent with the market

approach, and to a lesser extent, the income approach. We believe the market approach valuation technique provides more observable

data than the income approach, considering the type of investments we hold. Our fair value measurements could differ significantly based

on the valuation technique and available inputs. When markets are less active, brokers may rely more on models with inputs based on the

information available only to the broker. In weighing a broker quote as an input to fair value, we place less reliance on quotes that do not

reflect the result of market transactions. We also consider the nature of the quote, particularly whether the quote is an indicative price or

a binding offer. If prices in an inactive market do not reflect current prices for the same or similar assets, adjustments may be necessary to

arrive at fair value. When relevant market data is unavailable, which may be the case during periods of market uncertainty, the income

approach can, in appropriate circumstances, provide a more appropriate fair value. During 2008, we have applied valuation techniques

on a consistent basis to similar assets and liabilities and consistent with those techniques used at year end 2007. Due to recent market

conditions, the mix and availability of observable inputs for valuation techniques have been volatile, and the risk inherent in the inputs

is elevated relative to prior periods.

Inputs to Valuation Techniques

Inputs refer broadly to the assumptions that market participants use in pricing assets or liabilities, including assumptions about risk, for

example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent

in the inputs to the valuation technique. Inputs may be observable or unobservable.

Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed

based on market data obtained from independent sources.

Unobservable inputs are inputs that reflect our own assumptions about the assumptions market participants would use in pricing

the asset or liability developed based on the best information available in the circumstances.

Observable inputs which we utilize to determine the fair values of our investments and derivative financial instruments include

indicative broker prices and prices obtained from external pricing services. At December 31, 2008, approximately 87.6 percent of our fixed

maturity securities were valued based on active trades and/or broker quotes or prices obtained from pricing services that generally use

observable inputs in their valuation techniques, with no additional adjustments to the prices. These assets were classified as either Level 1

or Level 2, with the categorization dependent on whether the price was for an actual representative sale, for identical assets actively traded,

and/or the quote binding or non-binding. We generally obtain, on average, one quote per financial instrument. We review the prices obtained

to ensure they are consistent with a variety of observable market inputs and to verify the validity of a security’s price. These inputs, along

with our knowledge of the financial conditions and industry in which the issuer operates, will be considered in determining whether the

quoted or indicated price, as well as the change in price from quarter to quarter, are valid.

On selected securities where there is not an indicated price or where we cannot validate the price, some combination of market

inputs may be used to determine a price using a pricing matrix, or we may use pricing inputs from a comparable security. At December 31,

2008, we valued approximately 9.8 percent of our fixed maturity securities using this method. These assets were classified as Level 2. The

parameters and inputs used to validate a price on a security may be adjusted for assumptions about risk and current market conditions

on a quarter to quarter basis, as certain features may be more significant drivers of valuation at the time of pricing. Changes to inputs in

valuations are not changes to valuation methodologies; rather, the inputs are modified to reflect direct or indirect impacts on asset classes

from changes in market conditions. We consider transactions in inactive or disorderly markets to be less representative of fair value. We use

all available observable inputs when measuring fair value, but when significant other unobservable inputs and adjustments are necessary,

we classify these assets as Level 3.

Inputs that may be used include the following:

• Benchmark yields (Treasury and swap curves)

• Transactional data for new issuance and secondary trades

• Broker/dealer quotes and pricing

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