Annual Report
2022
A Note About Non-GAAP Financial
Measures
We present certain measures of our performance that are not calculated in accordance
with generally accepted accounting principles in the United States of America (GAAP).
Non-GAAP financial measures exclude or include amounts that are not normally excluded
or included in the most directly comparable measure calculated and presented in
accordance with GAAP. Non-GAAP financial measures should not be viewed as substitutes
for the most directly comparable financial measures calculated in accordance with GAAP.
This Annual Report refers to the following non-GAAP financial measures, which we believe
are better performance measures and better indicators of the revenue and profitability
and underlying trends in our business:
• After-tax adjusted operating income or loss, which we define as net income adjusted
to exclude after-tax investment gains or losses, the amortization of the cost of
reinsurance, as well as certain other items, as applicable, which are discussed under
“Executive Summary” in Part II, Item 7 of our 2022 Annual Report on Form 10-K; and
• Adjusted operating return on equity, which is calculated using after-tax adjusted
operating income or loss and excludes from equity the unrealized gain or loss on
securities and net gain or loss on hedges.
Investment gains or losses primarily include realized investment gains or losses, expected
investment credit losses, and gains or losses on derivatives. Investment gains or losses
and unrealized gains or losses on securities depend on market conditions and do not
necessarily relate to decisions regarding the underlying business of our company. We
have exited a substantial portion of our Closed Block individual disability product line
through the two phases of the reinsurance transaction that were executed in December
2020 and March 2021, respectively. As a result, we exclude the amortization of the cost
of reinsurance that was recognized upon the exit of the business related to the ceded
reserves for the cohort of policies on claim status. We believe that the exclusion of
the amortization of the cost of reinsurance provides a better view of our results from
our ongoing businesses. We may at other times exclude certain other items from our
discussion of financial ratios and metrics in order to enhance the understanding and
comparability of our operational performance and the underlying fundamentals, but this
exclusion is not an indication that similar items may not recur and does not replace the
comparable GAAP financial measures in the determination of overall profitability.
Reconciliations of the most directly comparable GAAP financial measures to the non-GAAP financial
measures are as follows:
Net Income
Excluding:
Net Investment Gains and Losses
Net Realized Investment Gain Related to Reinsurance Transaction
(net of tax expense of $–; $14.2)
Net Investment Gain (Loss), Other (net of tax expense (benefit)
of $(3.5); $1.9)
Total Net Investment Gain (Loss)
Items Related to Closed Block Individual Disability
Reinsurance Transaction
Change in Benefit Reserves and Transaction Costs
(net of tax benefit of $–; $29.2)
Amortization of the Cost of Reinsurance (net of tax benefit
of $13.4; $16.8)
Total Items Related to Closed Block Individual Disability
Reinsurance Transaction
Net Reserve Change Related to Reserve Assumption Updates
(net of tax expense of $32.5; $38.1)
Impairment Loss on Internal-Use Software (net of tax benefit of $–; $2.5)
Costs Related to Early Retirement of Debt (net of tax benefit of $–; $14.1)
Impairment Loss on ROU Asset (net of tax benefit of $–; $2.9)
Impact of U.K. Tax Rate Increase
2022
2021
(in millions)
per share*
(in millions)
per share*
$ 1,314.2
$ 6.50
$ 824.2
$ 4.02
–
(12.2)
(12.2)
–
(0.07)
(0.07)
–
–
(50.4)
(0.25)
53.4
7.2
60.6
(110.1)
(62.3)
0.26
0.03
0.29
(0.53)
(0.31)
(50.4)
(0.25)
(172.4)
(0.84)
122.5
0.61
–
–
–
–
–
–
–
–
143.3
(9.6)
(53.2)
(11.0)
(24.2)
0.70
(0.05)
(0.26)
(0.05)
(0.12)
After-tax Adjusted Operating Income
$ 1,254.3
$ 6.21
$ 890.7
$ 4.35
*Assuming Dilution
Year Ended December 31, 2022
After-Tax Adjusted
Operating Income (Loss)
Average Allocated
Equity1
Adjusted Operating
Return on Equity
Unum US
Unum International
Colonial Life
Core Operating Segments
Closed Block
Corporate
Total
$ 767.2
156.7
295.7
1,219.6
190.9
(156.2)
$ 1,254.3
$ 4,706.9
772.7
1,549.1
7,028.7
4,762.6
(979.6)
$ 10,811.7
16.3%
20.3%
19.1%
17.4%
11.6%
1. Excludes unrealized gain (loss) on securities and net gain (loss) on hedges and is calculated using the stockholders’ equity balances presented on the following page.
Total Stockholders’ Equity
Excluding:
Net Unrealized Gain (Loss) on Securities
Net Gain (Loss) on Hedges
December 31
2022
2021
$ 9,197.5
$ 11,416.4
(2,023.8)
(9.6)
962.2
61.8
Total Adjusted Stockholders’ Equity
$ 11,230.9
$ 10,392.4
Average Adjusted Stockholders’ Equity
$ 10,811.7
Year Ended December 31, 2022
Year Ended December 31, 2022
(in millions)
$ 9,197.5
per share
$ 46.51
(2,023.8)
(9.6)
11,230.9
(389.1)
11,620.0
(334.1)
(10.23)
(0.05)
56.79
(1.97)
58.76
(1.69)
$ 60.45
Total Stockholders’ Equity (Book Value)
Excluding:
Net Unrealized Gain (Loss) on Securities
Net Gain (Loss) on Hedges
Subtotal
Excluding:
Foreign Currency Translation Adjustment
Subtotal
Excluding:
Unrecognized Pension and Postretirement Benefit Costs
Total Stockholders’ Equity, Excluding Accumulated Other Comprehensive Income (Loss)
$ 11,954.1
Debt
Including:
Lease Liability
Adjusted Debt and Lease Liability
Total Stockholders’ Equity
Excluding:
Net Unrealized Loss on Securities and Net Loss on Hedges
Equity, As Adjusted
Debt, As Adjusted and Lease Liability
Total Adjusted Capital
Leverage Ratio
December 31, 2022
$ 3,429.8
67.9
$ 3,497.7
$ 9,197.5
(2,033.4)
11,230.9
3,497.7
$ 14,728.6
23.7%
Helping the working world thrive throughout life’s moments.TM
OUR PURPOSE
A Letter from our President and CEO,
Rick McKenney
To our shareholders, customers and colleagues:
At Unum, our purpose drives us every day to grow our business. We know
that a relentless focus on helping the working world thrive throughout life’s
moments is what unifies the efforts of nearly 11,000 Unum employees
across the globe, who are there when it matters most for our customers
and their families.
Our results in 2022 reflect the company’s proven ability to meet the
growing demand for our products and services. It was a historic year for
us, with record levels of after-tax operating earnings and capital. A cadence
of strong execution, strategic investments and meaningful innovation
fueled this performance, and favorably positions Unum for continued
growth as a market leader.
Since our founding in 1848, we have consistently delivered on our
promise to provide financial protection to those who put their trust in
us. As we celebrate our 175th anniversary, it’s not only a time to reflect
but an opportunity to look ahead toward our bright future. With a clear
purpose, growing market demand for what we do and strong momentum,
we are enthusiastic about the opportunities ahead for us.
In 2022, we helped
people at every
stage of life.
served 45 million
individuals and
their families
delivered $8 billion
in benefits
Review of 2022 Performance
The events of the last few years shined a bright light on the importance
of financial protection benefits, leave management, and other workplace
solutions. Unum entered 2022 well-positioned to meet these needs for
companies and their workers. The positive momentum that began in 2021 accelerated last year as
strong employment levels and wage growth combined with higher demand of our offerings to deliver
record results. Strong sales performance in our group and voluntary lines further aided top line
growth, while retention remained healthy across all products as customers continued to value our
offerings. As a result, premium income returned to pre-pandemic levels across our core businesses.
partnered with
more than 181,000
companies
Being there in times of need is why we exist and reinforces the critical importance of providing benefits
through the workplace. In 2022, we delivered on our purpose by paying nearly $8 billion in benefits
to individuals and their families. Building on our long-standing foundation of disability leadership, we
helped approximately 350,000 people return to work through robust vocational support and empathetic
partnerships between people, medical professionals and employers. This same commitment to
customers also drives us to manage our operations well. Our business model remains strong as prudent
underwriting and customer-oriented management of our claims process have resulted in solid margins.
In addition, significant investments in our business enabled us to deliver new products and services
that enhanced the experiences for both our individual and employer customers.
Unum ended the year with historically strong capital levels, well in excess of our targets and operational
needs, which enable investments in growth and return of capital to shareholders. We were pleased to
increase our dividend for the tenth straight year while maintaining a steady level of share repurchases.
The strength of our balance sheet offers us tremendous flexibility to invest in our future — our number
one priority — while continuing to return capital to shareholders.
2022 Performance by the Numbers1
Our strong execution resulted in an accelerated recovery of our business and we are well-positioned
for continued growth and value creation.
Premium income of
$9.6
BILLION
(up 1.5% from 2021)
Results included:
• Premium income of $9.6 billion, up 1.5% from 2021
• After-tax adjusted operating earnings per share growth of 43% over 2021
• Adjusted operating return on equity of 11.6%
• Book value per share, excluding accumulated other comprehensive
income, of $60.45, up 10.7% from 2021
Our capital metrics ended the year at historically strong levels:
• Holding company liquidity of $1.6 billion, amongst the highest levels we’ve seen
• Risk-based capital of approximately 420%, in excess of our targeted level of over 350%
• Leverage of 23.7%, which has declined steadily over the last several years
• Increased the quarterly dividend 10% to $0.33 per share, while paying $255 million in dividends
for the year
• Repurchased $200 million of shares
Guided by Our Purpose and Culture
Our purpose of helping the working world thrive is not just something we say, but a calling that guides
everything we do. With nearly 2 out of 3 people living paycheck to paycheck, and 1 in 4 workers being
disabled at some point in their career, the need for financial protection is greater than ever. At the same
time, companies are searching for ways to better support employee wellbeing through efficient and
transparent leave management, smart benefits for life’s unexpected moments, and access to mental
health resources.
What we do — and the people we help — converge at the workplace. While employees overwhelmingly
look to their employer to curate their benefits, companies look to us to provide innovative workplace
solutions. With more than 180,000 businesses relying on our industry-leading employee benefits and
services, we protect nearly 45 million workers through these trusted relationships.
Surrounding our purpose is a clear set of values that ensure our people put customers first. It starts
with doing the right thing for those who count on us. We’re proud that Ethisphere named us one of the
World’s Most Ethical Companies for the third year in
a row, a designation that speaks to our commitment
to doing business the right way. We also operate with
a caring spirit, a principle that guides our people to
engage with compassion, whether it’s a customer on
claim, a community partner in need or a coworker
reaching out for support.
We were again named by Ethisphere as
a World’s Most Ethical Company.
1. In 2018, the Financial Accounting Standards Board issued Accounting Standard Update 2018-12, “Targeted Improvements to the Accounting for Long-Duration Contracts.”
This update significantly amends the accounting and disclosure requirements for long-duration insurance contracts. We adopted this guidance effective January 1, 2023
with changes applied as of January 1, 2021. The discussion included herein does not include consideration of the impacts of this new accounting standard.
Our passion for helping others informs our advocacy for positive change in our communities.
Our support for community partners focuses on four strategic areas:
A CARING
SPIRIT
EQUITABLE
PATHWAYS
HEALTHIER
COMMUNITIES
READY
RESPONSE
Through strong and lasting partnerships with community organizations, we direct financial assistance
to promote equitable access and resources to education, health and wellbeing. Our matching gifts
program and company volunteer events amplify the impact of our people. A nimble approach to these
efforts allows us to quickly respond to emerging needs. For instance, we marked the tenth year of our
Education Leaders Experience, a program that connects educators with community, business and policy
leaders to promote greater awareness of workforce challenges. We also provided financial and volunteer
support of humanitarian efforts to aid Ukrainian refugees through our Unum Poland business. Across
our geographic footprint, Unum donated $12 million in 2022 to enhance educational opportunities,
promote wellbeing and help our communities grow stronger.
At our own workplace, we’ve leaned into helping employees become their best selves. Our commitment
to inclusion means greater diversity of thought and backgrounds that provide a richer experience
for our people and help us better serve those around us. By listening to what our people have to say
— through regular virtual CEO-led check-ins, town halls, annual engagement surveys and ongoing
conversations between employees and their managers — we foster genuine connection.
We are gratified that our commitment to employees and the workplace has been recognized by leading
organizations for excellence across a wide range of categories, including diversity, disability and LGBTQ
equality, health and wellbeing, and community engagement.
Modernizing the Benefits Experience
With the market dynamics of workplace benefits continuously evolving, remaining an industry leader
requires a deep understanding of both today’s and tomorrow’s challenges. People want ready access
to benefits when they’re needed, while businesses need information at their fingertips and intuitive
processes. Leveraging the deep expertise of our people, we meet employees and employers where they
are, reimagining every interaction to modernize and simplify the benefits and administration process.
Employees look to Unum to provide innovative and streamlined experiences that make their lives easier
and we have many examples of how we are meeting that need. Unum Total Leave, for instance, employs
a transformational digital platform to better manage all aspects of employee leave. Launched nationwide
in 2022, this comprehensive approach to leave management demystifies a benefit of growing importance
to employees and employers alike. In our Unum and Colonial Life voluntary benefit brands, we help
individuals build their own financial protection plan that provides benefits in the event of a critical illness
diagnosis, personal injury, expensive hospital stays and more. Additionally, in the U.K., Help@hand is our
award-winning app offering employees access to a wide range of health and wellness support services
they need for today’s busy life. These solutions not only address the needs of a multigenerational
workforce, they also enable employers to strengthen their overall benefit package in a cost-effective way
— a key part of retaining top talent in today’s competitive talent market.
At the same time, employers look to us as a partner that leverages technology to create a frictionless
approach to managing employee benefits. One example is MyUnum, our in-house digital environment
with always-on self-service and support, digital enrollment and a simple claims experience. Companies
with existing benefits administration platforms can leverage Unum HR Connect to put the data businesses
need at their fingertips. HR Connect gives valuable time back to HR professionals by integrating employee
benefits with a customer’s existing back-end systems and automating tasks like billing and benefits
eligibility. And this year, we are rolling out Gathr from Colonial Life. It is our proprietary enrollment and
benefits administration platform enabling smaller companies to have a modern experience for employees.
Robust back-end capabilities also bring efficiency and transparency to benefits administration.
Accelerating Long-Term Growth
The strength of our team and consistency in our strategic focus allows us to chart our course in 2023 and
beyond. Unum operates in very attractive markets with sustained and growing demand for our products and
services. We know that cloud-based HR technology is driving rapid change for our customers, representing
an opportunity for us. How we connect with and serve our customers is critical in bolstering our market-
leading positions, which is aided by our scale and deep expertise. Coupled with a favorable operating
environment, strong capital position and prudent risk management, we are in position to continue advancing
the momentum we gained in 2022.
We have a proven ability to transform our business, coupled with capitalizing on the economic and
competitive environment to fuel our growth in an efficient way. After seeing the investments we’ve made
over the last several years come to fruition, we are on track this year to increase our annual funding of
innovation and accelerate our transformation as a digital-first benefits company. The current market has
played to our advantage as a focused employee benefits provider that has made significant investments in
talent and in technology to grow through economic cycles.
Looking Ahead
Unum has emerged from the pandemic in a stronger position than when we entered. Across the enterprise,
we have healthy franchises that are well positioned to continue to deliver attractive returns. Our business
model is resilient, with a primary focus on growth, underpinned with effective risk management and
operating discipline.
For 175 years, we have helped the working world thrive. We entered 2023 with ample financial flexibility to
chart our course. The Unum team is excited about the growth trajectory we have in the coming years as we
diligently serve our customers.
Rick McKenney
President and CEO, Unum Group
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2022
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 001-11294
Unum Group
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
62-1598430
(I.R.S. Employer Identification No.)
1 Fountain Square
Chattanooga, Tennessee
(Address of principal executive offices)
37402
(Zip Code)
(423)294-1011
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $0.10 par value
6.250% Junior Subordinated Notes due 2058
Trading Symbol(s)
UNM
UNMA
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes [X]
No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]
No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-accelerated filer
x Accelerated filer
¨ Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act.
(Check one):
☐
☐
☐
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the shares of the registrant's common stock held by non-affiliates (based upon the closing price
of these shares on the New York Stock Exchange) as of the last business day of the registrant's most recently completed second
fiscal quarter was $6.8 billion. As of February 21, 2023, there were 197,294,182 shares of the registrant's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the information required by Part III of this Form 10-K are incorporated herein by reference from the registrant's
definitive proxy statement for its 2023 Annual Meeting of Stockholders which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, within 120 days after the end
of the registrant's fiscal year ended December 31, 2022.
TABLE OF CONTENTS
Cautionary Statement Regarding Forward-Looking Statements
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
PART II
Equity Securities
Item 6.
[Reserved]
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14.
Principal Accounting Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
PART IV
Index to Exhibits
Signatures
Page
1
3
22
35
35
35
35
36
36
37
100
106
207
207
209
209
210
210
211
212
212
213
223
227
Cautionary Statement Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the Act) provides a "safe harbor" to encourage companies to provide
prospective information, as long as those statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual results to differ materially from those included in the
forward-looking statements. Certain information contained in this Annual Report on Form 10-K (including certain statements
in the business description in Item 1, Management's Discussion and Analysis in Item 7, and the consolidated financial
statements and related notes in Item 8), or in any other written or oral statements made by us in communications with the
financial community or contained in documents filed with the Securities and Exchange Commission (SEC), may be considered
forward-looking statements within the meaning of the Act. Forward-looking statements are those not based on historical
information, but rather relate to our outlook, future operations, strategies, financial results, or other developments. Forward-
looking statements speak only as of the date made. We undertake no obligation to update these statements, even if made
available on our website or otherwise. These statements may be made directly in this document or may be made part of this
document by reference to other documents filed by us with the SEC, a practice which is known as "incorporation by reference."
You can find many of these statements by looking for words such as "will," "may," "should," "could," "believes," "expects,"
"anticipates," "estimates," "plans," "assumes," "intends," "projects," "goals,” "objectives," or similar expressions in this
document or in documents incorporated herein.
These forward-looking statements are subject to numerous assumptions, risks, and uncertainties, many of which are beyond our
control. We caution readers that the following factors, in addition to other factors mentioned from time to time, may cause
actual results to differ materially from those contemplated by the forward-looking statements:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Fluctuation in insurance reserve liabilities and claim payments due to changes in claim incidence, recovery rates,
mortality and morbidity rates, and policy benefit offsets due to, among other factors, the rate of unemployment and
consumer confidence, the emergence of new diseases, epidemics, or pandemics, new trends and developments in
medical treatments, the effectiveness of our claims operational processes, and changes in governmental programs.
Sustained periods of low interest rates.
Unfavorable economic or business conditions, both domestic and foreign, that may result in decreases in sales,
premiums, or persistency, as well as unfavorable claims activity or unfavorable returns on our investment portfolio.
The impact of pandemics and other public health issues, including COVID-19, on our business, financial position,
results of operations, liquidity and capital resources, and overall business operations.
Changes in, or interpretations or enforcement of, laws and regulations.
Our ability to hire and retain qualified employees.
A cyber attack or other security breach could result in the unauthorized acquisition of confidential data.
The failure of our business recovery and incident management processes to resume our business operations in the
event of a natural catastrophe, cyber attack, or other event.
Investment results, including, but not limited to, changes in interest rates, defaults, changes in credit spreads,
impairments, and the lack of appropriate investments in the market which can be acquired to match our liabilities.
Increased competition from other insurers and financial services companies due to industry consolidation, new entrants
to our markets, or other factors.
Changes in our financial strength and credit ratings.
Our ability to develop digital capabilities or execute on our technology systems upgrades or replacements.
Actual experience in the broad array of our products that deviates from our assumptions used in pricing, underwriting,
and reserving.
Ineffectiveness of our derivatives hedging programs due to changes in forecasted cash flows, the economic
environment, counterparty risk, ratings downgrades, capital market volatility, changes in interest rates, and/or
regulation.
Availability of reinsurance in the market and the ability of our reinsurers to meet their obligations to us.
Ability to generate sufficient internal liquidity and/or obtain external financing.
Damage to our reputation due to, among other factors, regulatory investigations, legal proceedings, external events,
and/or inadequate or failed internal controls and procedures.
The use and reliance on third-party vendors, including vendors providing web and cloud-based applications, may
disrupt our business, and impact our ability to leverage data.
Recoverability and/or realization of the carrying value of our intangible assets, long-lived assets, and deferred tax
assets.
Effectiveness of our risk management program.
Contingencies and the level and results of litigation.
Fluctuation in foreign currency exchange rates.
1
•
Our ability to meet environment, social, and governance standards and expectations of investors, regulators, customers,
and other stakeholders.
All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements contained or referred to in this section.
2
ITEM 1. BUSINESS
General
PART I
Unum Group, a Delaware general business corporation, and its insurance and non-insurance subsidiaries, which collectively
with Unum Group we refer to as the Company, operate in the United States, the United Kingdom, Poland, and, to a limited
extent, in certain other countries. The principal operating subsidiaries in the United States are Unum Life Insurance Company
of America (Unum America), Provident Life and Accident Insurance Company (Provident), The Paul Revere Life Insurance
Company (Paul Revere Life), Colonial Life & Accident Insurance Company, Starmount Life Insurance Company (Starmount
Life), in the United Kingdom, Unum Limited, and in Poland, Unum Zycie TUiR S.A. (Unum Poland). We are a leading
provider of financial protection benefits in the United States and the United Kingdom. Our products include disability, life,
accident, critical illness, dental and vision, and other related services. We market our products primarily through the workplace.
We have three principal operating business segments: Unum US, Unum International, and Colonial Life. Our other segments
are the Closed Block and Corporate segments. These segments are discussed more fully under "Reporting Segments" included
herein in this Item 1.
Business Strategies
The benefits we provide help the working world thrive throughout life's moments and protect people from the financial hardship
of illness, injury, or loss of life. As a leading provider of employee benefits, we offer a broad portfolio of products and services
through the workplace that provide support when it is needed most.
Specifically, we offer group, individual, voluntary, and dental and vision products as well as provide certain fee-based services.
These products and services, which can be sold stand-alone or combined with other coverages, help employers of all sizes
attract and retain the talented and capable workforce they need to succeed while protecting the incomes and livelihood of their
employees. We believe employer-sponsored benefits are the most effective way to provide workers with access to information
and options to protect their financial stability. Working people and their families, particularly those at lower and middle
incomes, are perhaps the most vulnerable in today's economy yet are often overlooked by many providers of financial products
and services. For many of these people, employer-sponsored benefits are the primary defense against the potentially
catastrophic fallout of death, illness, or injury.
We have established a corporate culture consistent with the social values our products provide. Because we see important links
between the obligations we have to all of our stakeholders, we place a strong emphasis on operating with integrity and
contributing to positive change in our communities. Accordingly, we are committed not only to meeting the needs of our
customers who depend on us, but also to being accountable for our actions through sound and consistent business practices, a
strong internal compliance program, a comprehensive risk management strategy, and an engaged employee workforce.
We believe our disciplined approach to providing financial protection products at the workplace puts us in a position of
strength. The products and services we provide have never been more important to employers, employees, and their families.
Our strategy remains centered on growing our core businesses through investing and transforming our operations and
technology to anticipate and respond to the changing needs of our customers, expanding into new adjacent markets through
meaningful partnerships and effective deployment of our capital across our portfolio.
We continue to analyze and employ strategies we believe will help us navigate the current environment and allow us to
maintain financial flexibility to support the needs of our businesses while also allowing us to return capital to our shareholders.
As we have seen in the current environment, we have substantial leverage to rising inflation and strong labor markets which
generate wage and payroll growth. To the extent that our own costs increase as a result of wage inflation, we have the ability to
adjust our prices on new and renewing business to reflect the higher costs.
Long-term, we believe that consistent operating results, combined with the implementation of strategic initiatives and the
effective deployment of capital, will allow us to meet our financial objectives.
3
Reporting Segments
Our reporting segments are comprised of the following: Unum US, Unum International, Colonial Life, Closed Block, and
Corporate. The percentage of consolidated premium income generated by each reporting segment for the year ended
December 31, 2022 is as follows:
Unum US
Unum International
Colonial Life
Closed Block
Total
65.0 %
7.5
17.7
9.8
100.0 %
Financial information is provided in "Management's Discussion and Analysis of Financial Condition and Results of Operations"
contained herein in Item 7 and Note 13 of the "Notes to Consolidated Financial Statements" contained herein in Item 8.
Unum US Segment
Our Unum US segment is comprised of group disability, group life and accidental death and dismemberment, and supplemental
and voluntary lines of business. The group disability line of business includes long-term and short-term disability, medical
stop-loss, and fee-based service products. The supplemental and voluntary line of business includes individual disability,
voluntary benefits, and dental and vision products. Unum US products are issued primarily by Unum America, Provident, and
Starmount Life. These products are marketed through our field sales personnel who work in conjunction with independent
brokers and consultants. Our market strategy for Unum US is to effectively deliver an integrated offering of employee benefit
products in the group core market segment, which we define for Unum US as employee groups with fewer than 2,000
employees, the group large case market segment, and the supplemental and voluntary market segment.
The percentage of Unum US segment premium income generated by each product line during 2022 is as follows:
Group Disability
Group Life and Accidental Death & Dismemberment
Individual Disability
Voluntary Benefits
Dental and Vision
Total
45.4 %
29.4
7.4
13.4
4.4
100.0 %
Group Long-term and Short-term Disability
We sell group long-term and short-term disability products to employers for the benefit of employees.
Group long-term disability provides employees with insurance coverage for loss of income in the event of extended work
absences due to sickness or injury. We offer services to employers and insureds to encourage and facilitate rehabilitation,
retraining, and re-employment. Most policies begin providing benefits following 90 or 180 day waiting periods and continue
providing benefits until the employee reaches a certain age, generally between 65 and 70, or recovers from the disability. The
benefits are limited to specified maximums as a percentage of income. Also included in our long-term disability product line is
our medical stop-loss product, which is designed to protect self-insured employers if their employees' medical claims exceed
certain agreed upon thresholds.
Group short-term disability insurance generally provides coverage from loss of income due to injury or sickness for up to 26
weeks and is limited to specified maximums as a percentage of income. Benefits are typically effective after 0 to 30 days for
accidents and after 7 to 30 days for sickness.
Our fee-based services include leave management and administrative services only (ASO) business. Leave management
services provide administrative services on behalf of employers to ensure the protected leave eligibility and status for
employees are in accordance with applicable laws and regulations. ASO products provide administrative services regarding
4
claims processing and billing for self-insured customers for which the responsibility for funding claim payments remain with
the customer.
Premiums for group long-term and short-term disability are generally based on expected claims of a pool of similar risks plus
provisions for administrative expenses, investment income, and profit. In some cases, coverage for large employers will
include retrospective experience rating provisions or will be underwritten on an experience-rated basis. Premiums for
experience-rated group long-term and short-term disability business are based on the expected experience of the client given its
demographics, industry group, and location, adjusted for the credibility of the specific claim experience of the client. Both
group long-term and short-term disability are sold primarily on a basis permitting periodic repricing to address the underlying
claims experience. Fees for our leave management services and ASO business are generally based on the number of covered
employees and an agreed-upon per-employee, per-month rate. Premiums for our medical stop-loss product are generally based
on the number of covered employees in self-insured employer groups and their estimated overall health risk plus provisions for
administrative expenses, and profit.
We have defined underwriting practices and procedures. If the coverage amount for our disability policies exceeds certain
prescribed age and amount limits, we may require a prospective insured to submit evidence of insurability. Our disability
policies are typically issued, both at inception and renewal, with rate guarantees. For new group policyholders, the usual rate
guarantee is one to three years. For group policies being renewed, the rate guarantee is generally one year, but may be longer.
The profitability of the policy depends on the adequacy of the rate during the rate guarantee period. The contracts provide for
certain circumstances in which the rate guarantees can be overridden. Our medical stop loss contracts are renewable on an
annual basis and rates are not guaranteed beyond one year. There is no requirement for prospective medical stop loss insureds
to submit evidence of insurability because coverage levels are determined for the group as a whole.
Profitability of group long-term and short-term disability insurance and our medical stop-loss product is affected by sales,
persistency, investment returns, claims experience, and the level of administrative expenses. Morbidity is an important factor in
disability claims experience, and many economic and societal factors can affect claim incidence for disability insurance. We
routinely make pricing adjustments on our group long-term and short-term disability insurance products, when contractually
permitted, which take into account emerging experience and external factors.
Group Life and Accidental Death and Dismemberment
Group life and accidental death and dismemberment products are sold to employers as employee benefit products. Group life
consists primarily of renewable term life insurance with the coverages frequently linked to employees' wages and includes a
provision for waiver of premium, if disabled. Accidental death and dismemberment consists primarily of an additional benefit
amount payable if death or severe injury is attributable to an accident.
Premiums are generally based on expected claims of a pool of similar risks plus provisions for administrative expenses,
investment income, and profit. Underwriting practices and rate guarantees are similar to those used for group disability
products, and evidence of insurability is required for benefits in excess of a specified limit.
Profitability of group life and accidental death and dismemberment insurance is affected by persistency, investment returns,
mortality and other claims experience, and the level of administrative expenses.
Individual Disability
Individual disability products are offered primarily to multi-life employer groups to supplement their group disability plans and
may be funded by the employer, but the policy is owned by the employee and is portable. Individual disability insurance
provides the insured with a portion of earned income lost as a result of sickness or injury. The benefits, including the
underlying group disability coverage, typically range from 30 percent to 75 percent of the insured's monthly earned income.
We provide various options with respect to length of benefit periods, product features, and waiting periods before benefit
payments begin, which permit tailoring of the multi-life plan to a specific employer's needs. We also market individual
disability policies which include payments for the transfer of business ownership between partners and payments for business
overhead expenses, also on a multi-life basis. Individual disability products do not provide for the accumulation of cash values.
Premium rates for individual disability products vary by age, product features, industry, region, and occupation based on
assumptions concerning morbidity, mortality, persistency, administrative expenses, investment income, and profit. We develop
our assumptions based on our own experience. Our underwriting rules, issue limits, and plan designs reflect risk and the
financial circumstances of prospective insureds. Individuals in multi-life groups may be subject to limited medical
5
underwriting. The majority of our individual disability policies are written on a noncancelable basis. Under a noncancelable
policy, as long as the insured continues to pay the fixed annual premium for the policy's duration, we cannot cancel the policy
or change the premium.
Profitability of individual disability insurance is affected by persistency, investment returns, claims experience, and the level of
administrative expenses.
Voluntary Benefits
Voluntary benefits products are primarily sold to groups of employees through payroll deduction at the workplace and include
accident, disability, life, hospital indemnity, cancer, and critical illness. Products are issued on both a group and individual
basis.
Premiums are generally based on assumptions for morbidity, mortality, persistency, administrative expenses, investment
income, and profit. We develop our assumptions based on our own experience and published industry tables. Our underwriters
evaluate the medical condition of prospective policyholders prior to the issuance of a policy on a simplified basis.
Underwriting requirements may be waived for cases that meet certain criteria, including participation levels. Individual
voluntary benefits products other than life insurance are offered on a guaranteed renewable basis which allows us to reprice in-
force policies, subject to regulatory approval. Group voluntary benefits products are offered primarily on an optionally
renewable basis which allows us to reprice or terminate in-force policies.
Profitability of voluntary benefits products is affected by the level of employee participation, persistency, investment returns,
mortality and other claims experience, and the level of administrative expenses.
Dental and Vision
Group dental and vision products are sold to employers as employee benefit products. Our group dental products include a
variety of insured and self-insured dental care plans including preferred provider organizations and scheduled reimbursement
plans. Our group vision products provide coverage that includes a range of both in-network and out-of-network benefits for
routine vision services offered either in conjunction with our dental product offerings or as stand-alone coverage.
Premiums for small case group dental and vision products are generally based on expected claims of a pool of similar risks plus
a provision for administrative expenses, investment income, and profit. Premiums for large employer groups are underwritten
on an experience-rated basis.
Profitability of our dental and vision products is affected by persistency, claims experience, the level of administrative
expenses, and to a lesser extent, investment returns.
Unum International Segment
Our Unum International segment includes our operations in the United Kingdom and Poland. Unum UK's business includes
insurance for group long-term disability, group life, and supplemental lines of business which include dental, individual
disability, and critical illness products. Unum Poland's business primarily includes insurance for individual and group life with
accident and health riders. Unum International's products are sold primarily through field sales personnel and independent
brokers and consultants. The market strategy for the segment is to offer benefits to employers and employees through the
workplace, with a focus on the expansion of the number of employers and employees covered in our Unum UK business, and
the growth of the existing Unum Poland business through the incorporation of our benefits and distribution expertise.
The percentage of Unum International segment premium income generated by each product line during 2022 is as follows:
Unum UK
Group Long-term Disability
Group Life
Supplemental
Unum Poland
Total
6
52.4 %
19.2
15.9
12.5
100.0 %
Unum UK Group Long-term Disability
Group long-term disability products are sold to employers for the benefit of employees. Group long-term disability provides
employees with insurance coverage for loss of income in the event of extended work absences due to sickness or injury.
Services are offered to employers and insureds to encourage and facilitate rehabilitation, retraining, and re-employment. Most
policies begin providing benefits following 90 or 180 day waiting periods and continue providing benefits until the employee
reaches a certain age or reaches the end of the limited period specified in the policy terms. The benefits are limited to specified
maximums as a percentage of income.
Premiums for group long-term disability are generally based on expected claims of a pool of similar risks plus provisions for
administrative expenses, investment income, and profit. Some cases carry experience rating provisions. Premiums for
experience-rated group long-term disability business are based on the expected experience of the client given its demographics,
industry group, and location, adjusted for the credibility of the specific claim experience of the client. Policies are sold
primarily on a basis permitting periodic repricing to address the underlying claims experience.
We have defined underwriting practices and procedures. If the coverage amount exceeds certain prescribed age and amount
limits, we may require a prospective insured to submit evidence of insurability. Policies are typically issued, both at inception
and renewal, with rate guarantees. The usual rate guarantee is two years, but may vary depending on circumstances. The
profitability of the policy is dependent upon the adequacy of the rate during the rate guarantee period. The contracts provide for
certain circumstances in which the rate guarantees can be overridden.
Profitability of group long-term disability insurance is affected by sales, persistency, investment returns, claims experience, and
the level of administrative expenses. Morbidity is an important factor in disability claims experience. We routinely make
pricing adjustments on our group insurance products, when contractually permitted, which take into account emerging
experience and external factors.
Unum UK Group Life
Group life products are sold to employers as employee benefit products. Group life consists of two types of products, a
renewable term life insurance product and a group dependent life product. The renewable term life product provides a lump
sum benefit to the beneficiary upon the death of an employee. The group dependent life product, which we discontinued
offering to new customers in 2012, provides an annuity to the beneficiary upon the death of an employee. Both coverages are
frequently linked to employees' wages. Premiums for group life are generally based on expected claims of a pool of similar
risks plus provisions for administrative expenses, investment income, and profit. Underwriting and rate guarantees are similar
to those utilized for Unum UK group long-term disability products.
Profitability of group life is affected by sales, persistency, investment returns, mortality and other claims experience, and the
level of administrative expenses.
Unum UK Supplemental
Supplemental products are sold to groups of employees and include group critical illness and group dental products. Group
critical illness products provide a lump-sum benefit on the occurrence of a covered critical illness event. Group dental products
generally provide fixed benefits based on specified treatments or a portion of the cost of the treatment. Beginning in 2022,
supplemental products are no longer actively marketed to individual customers.
Premiums for group critical illness products are generally based on expected claims of a pool of similar risks plus provisions for
administrative expenses, investment income, and profit. Underwriting and rate guarantees are similar to those utilized for
Unum UK group long-term disability products. Premiums for group dental products are generally based on standard industry
rates that vary by age, with minor pricing variation based on the number of covered employees in the group. Profitability of our
supplemental products is affected by persistency, investment returns, claims experience, and the level of administrative
expenses.
Unum Poland
Unum Poland products, which include both individual and group life products, provide renewable term and whole life insurance
with accident and health riders. Premiums are based on expected claims of a pool of similar risks plus provisions for
7
administrative expenses, investment income, and profit. Profitability of our Unum Poland products is affected by persistency,
investment returns, mortality and other claims experience, and the level of administrative expenses.
Colonial Life Segment
Our Colonial Life segment includes accident, sickness, and disability products, life products, and cancer and critical illness
products. Products are issued primarily by Colonial Life & Accident Insurance Company and marketed to employees, on both
a group and an individual basis, at the workplace through an independent contractor agent sales force and brokers. Our market
strategy for Colonial Life is to effectively deliver a broad set of voluntary products and services in the public sector market and
in the commercial market, with a particular focus on the core commercial market segment, which we define for Colonial Life as
accounts with fewer than 1,000 employees.
Our underwriters evaluate the medical condition of prospective policyholders prior to the issuance of a policy on a simplified
basis. Underwriting requirements may be waived for cases that meet certain criteria, including participation levels.
The percentage of Colonial Life segment premium income generated by each product line during 2022 is as follows:
Accident, Sickness, and Disability
Life
Cancer and Critical Illness
Total
55.8 %
23.5
20.7
100.0 %
Accident, Sickness, and Disability
The accident, sickness, and disability product line consists of short-term disability plans, accident-only plans providing benefits
for injuries on a specified loss basis, and our dental and vision products. It also includes accident and health plans which cover
events such as hospital admissions, confinement, and surgeries.
Premiums are generally based on assumptions for morbidity, mortality, persistency, administrative expenses, investment
income, and profit. We develop our assumptions based on our own experience and published industry tables. Premiums are
primarily individual guaranteed renewable which allows us to change premiums on a state by state basis. A small percentage of
the policies are written on a group basis which are offered primarily on an optionally renewable basis which allows us to reprice
or terminate in-force policies. Premiums for our dental and vision products are guaranteed renewable with standard industry
rates that vary by age and region.
Profitability is affected by the level of employee participation, persistency, investment returns, claims experience, and the level
of administrative expenses.
Life
Life products are primarily comprised of universal life, whole life, and term life policies.
Premiums are generally based on assumptions for mortality, persistency, administrative expenses, investment income, and
profit. We develop our assumptions based on our own experience and published industry tables. Premiums for the individual
whole life and term life products are guaranteed for the life of the contract. Premiums for the individual universal life products
are flexible and may vary at the individual policyholder level. For the group term life products, we retain the right to change
premiums at the account level based on the experience of the account.
Profitability is affected by the level of employee participation, persistency, investment returns, mortality and other claims
experience, and the level of administrative expenses.
Cancer and Critical Illness
Cancer policies provide various benefits for the treatment of cancer including hospitalization, surgery, radiation, and
chemotherapy. Critical illness policies provide a lump-sum benefit and/or fixed payments on the occurrence of a covered
critical illness event.
8
Premiums are generally based on assumptions for morbidity, mortality, persistency, administrative expenses, investment
income, and profit. We develop our assumptions based on our own experience and published industry tables. Premiums are
primarily individual guaranteed renewable wherein we have the ability to change premiums on a state by state basis. A small
percentage of the policies are written on a group basis and are offered primarily on an optionally renewable basis which allows
us to reprice or terminate in-force policies.
Profitability of these products is affected by the level of employee participation, persistency, investment returns, mortality and
other claims experience, and the level of administrative expenses.
Closed Block Segment
Our Closed Block segment consists of group and individual long-term care and other insurance products no longer actively
marketed. Closed Block segment premium income for 2022 was comprised of approximately 74 percent group and individual
long-term care and 26 percent other insurance products.
Group and Individual Long-term Care
We discontinued offering individual long-term care in 2009 and group long-term care in 2012. Group long-term care was
previously offered to employers for the benefit of employees. Individual long-term care was previously marketed on a single-
life customer basis.
Long-term care insurance pays a benefit upon the loss of two or more activities of daily living and the insured's requirement of
standby assistance or cognitive impairment. Payment is generally made on an indemnity basis, regardless of expenses incurred,
up to a lifetime maximum. Benefits begin after a waiting period, usually 90 days or less, and are generally paid for a period of
three years, six years, or lifetime.
Our long-term care insurance was sold on a guaranteed renewable basis which allows us to reprice in-force policies, subject to
regulatory approval. Premium rates for long-term care vary by age and are based on assumptions concerning morbidity,
mortality, persistency, administrative expenses, investment income, and profit. Premium rate increases continue to be
implemented where needed and where approved by state regulators. We develop our assumptions based on our own claims and
persistency experience and published industry tables.
Profitability is affected by premium rate increases, persistency, investment returns, mortality and other claims experience, and
the level of administrative expenses.
Other
Other insurance products not actively marketed include individual disability, group pension, individual life and corporate-
owned life insurance, reinsurance pools and management operations, and other miscellaneous product lines. The majority of
these products have been reinsured, with approximately 85 percent of reserves at December 31, 2022 ceded to other insurance
companies.
In December 2020, we entered into the first phase of a reinsurance transaction to reinsure the majority of our Closed Block
individual disability products to a third party. In March 2021, we completed the second phase of the reinsurance transaction to
reinsure a portion of the remaining Closed Block individual disability business that was not ceded in December 2020. For
further discussion on this reinsurance transaction, refer to "Reinsurance" herein in this Item 1, "Executive Summary" and
"Segment Results" contained herein in Item 7, and Note 12 of the "Notes to Consolidated Financial Statements" contained
herein in Item 8.
Corporate Segment
Our Corporate segment includes investment income on corporate assets not specifically allocated to a line of business, interest
expense on corporate debt, and certain other corporate income and expenses not allocated to a line of business.
Reinsurance
In the normal course of business, we assume reinsurance from and cede reinsurance to other insurance companies. In a
reinsurance transaction, a reinsurer agrees to indemnify another insurer for part or all of its liability under a policy or policies it
9
has issued for an agreed upon premium or fee. We undertake reinsurance transactions for both risk management and capital
management. If the assuming reinsurer in a reinsurance agreement is unable to meet its obligations, we remain contingently
liable. In the event that reinsurers do not meet their obligations under the terms of the reinsurance agreement, reinsurance
recoverable balances could become uncollectible. We evaluate the financial condition of reinsurers to whom we cede business
and monitor concentration of credit risk to minimize our exposure. We may also require assets to be held in trust, letters of
credit, or other acceptable collateral to support reinsurance recoverable balances. The collectability of our reinsurance
recoverable is primarily a function of the solvency of the individual reinsurers. Although we have controls to minimize our
exposure, the insolvency of a reinsurer or the inability or unwillingness of a reinsurer to comply with the terms of a reinsurance
contract could have a material adverse effect on our results of operations.
In general, the maximum amount of life insurance risk retained by our U.S. insurance subsidiaries under group or individual life
or group or individual accidental death and dismemberment policies during 2022 was $1 million per covered life per policy.
The retention amount remains at $1 million for 2023. For Unum Limited life insurance risk, during 2022 we had reinsurance
agreements which provided 75 percent quota share coverage up to £500 thousand per covered life for group dependent life
benefits and 25 percent quota share coverage for most of our group lump sum benefits, as well as 100 percent coverage per
covered life above that amount. The same structures will be maintained for coverage during 2023 for Unum Limited.
In December 2020, we completed the first phase of a reinsurance transaction, pursuant to which Provident, Paul Revere Life,
and Unum America, collectively referred to as "the ceding companies", each entered into separate reinsurance agreements with
Commonwealth Annuity and Life Insurance Company (Commonwealth), a subsidiary of Global Atlantic Financial Group, to
reinsure on a coinsurance basis effective as of July 1, 2020 approximately 75 percent of the Closed Block individual disability
business, primarily direct business written by the ceding companies. In March 2021, we completed the second phase of the
reinsurance transaction, pursuant to which the ceding companies and Commonwealth amended and restated their respective
reinsurance agreements to reinsure on a coinsurance and modified coinsurance basis, effective as of January 1, 2021, a
substantial portion of the remaining Closed Block individual disability business that was not ceded in December 2020,
primarily business previously assumed by the ceding companies. Commonwealth established and will maintain collateralized
trust accounts for the benefit of the ceding companies to secure its obligations under the reinsurance agreements.
Also in December 2020, Provident Life and Casualty Insurance Company (PLC), also a wholly-owned domestic insurance
subsidiary of Unum Group, entered into an agreement with Commonwealth whereby PLC will provide a 12-year volatility
cover to Commonwealth for the active life cohort (ALR cohort). On March 31, 2021, PLC and Commonwealth amended and
restated this agreement to incorporate the ALR cohort related to the additional business that was reinsured between the ceding
companies and Commonwealth as part of the second phase of the transaction. At the end of the 12-year coverage period,
Commonwealth will retain the risk for the remaining incidence and claims risk on the ALR cohort of the ceded business. Under
this volatility cover, annual settlements will be made equal to the difference between the actual and estimated cash flows and
reserve changes during the year. Upon expiration of the 12-year period, a terminal settlement will be made based on the final
reserves for the ALR cohort. Due to the nature of the volatility cover, the ALR cohort will be accounted for under the deposit
method on a U.S. generally accepted accounting principles (GAAP) basis.
We have global catastrophic reinsurance coverage which covers all Unum Group insurance companies and includes four layers
of coverage to limit our exposure under life, accidental death and dismemberment, long-term care, and disability policies in
regard to a catastrophic event. Each layer provides coverage for all catastrophic events, including acts of war and any type of
terrorism, up to $1 million of coverage per person per policy for each U.S. and Poland line of covered business, and up to £2
million of coverage for each U.K. covered line of business. We have the following coverage for 2023, after a $150 million
deductible:
Layer
First
Second
Third
Fourth
Total Catastrophic Coverage
Coverage
(in millions)
50.0
$
55.0
82.5
165.0
352.5
$
Percent
Coverage
50.0 %
55.0
55.0
55.0
10
In addition to the global catastrophic reinsurance coverage noted above, Unum Limited has additional catastrophic coverage via
an arms-length, intercompany reinsurance agreement with Unum America, under similar terms as the global catastrophic
treaties. Unum Limited has the following additional coverage for 2023, after a £81.3 million deductible:
Layer
First
Second
Total Catastrophic Coverage
Coverage
(in millions)
32.5
£
24.4
56.9
£
Percent
Coverage
80.0 %
30.0
Unum Poland had additional global catastrophic reinsurance coverage of up to zł70 million with a maximum retention limit of
zł0.8 million in 2022. Insurable events included passive war, as well as nuclear, chemical, biological and other forms of
terrorism. For 2023, Unum Poland has additional global catastrophic reinsurance coverage of up to zł100 million per event, or
up to zł200 million for the year, with a maximum retention limit of zł1.2 million. Insurable events exclude war, as well as
nuclear, chemical, biological and other forms of terrorism.
Events may occur which limit or eliminate the availability of catastrophic reinsurance coverage in future years.
We have a quota share reinsurance agreement under which we cede certain blocks of Unum US group long-term disability
claims. The agreement is on a combination coinsurance with funds withheld and modified coinsurance basis and provides 90
percent quota share reinsurance on the ceded claims. We also have five reinsurance agreements that collectively cede
approximately 65 percent of Unum US group life risk up to our per person retention limit for our U.S. insurance subsidiaries.
These reinsurance agreements for Unum US group disability and group life allow us to more effectively manage capital in
conformity with statutory accounting principles but do not meet insurance risk transfer in accordance with applicable GAAP
and therefore are not accounted for as reinsurance in our consolidated GAAP financial statements.
We also cede 30 percent of the risk for certain blocks of recently issued Unum US individual disability policies, as well as some
related claims development risk for a limited period of time. The agreement is on a non-proportional modified coinsurance
basis with a provision for experience refunds.
Unum America cedes certain long-term care business to Fairwind Insurance Company (Fairwind), which is an affiliated captive
reinsurance subsidiary (captive reinsurer) domiciled in the United States, with Unum Group as the ultimate parent. This captive
reinsurer was established for the limited purpose of reinsuring risks attributable to specified policies issued or reinsured by
Unum America in order to effectively manage risks in connection with this business as well as to enhance our capital efficiency.
On a consolidated reporting basis for Unum Group, financial statement impacts of our reinsurance arrangements with affiliates
are eliminated in accordance with GAAP.
For further discussion of our reinsurance activities, refer to "Risk Factors" contained herein in Item 1A; "Executive Summary,"
"Consolidated Operating Results," "Segment Results," and "Liquidity and Capital Resources - Cash Available from
Subsidiaries" contained herein in Item 7, and Notes 1, 12, and 16 of the "Notes to Consolidated Financial Statements" contained
herein in Item 8.
Reserves for Policy and Contract Benefits
The applicable insurance laws under which insurance companies operate require that they report, as liabilities, policy reserves
to meet future obligations on their outstanding policies. These reserves are the amounts which, with the additional premiums to
be received and interest thereon compounded annually at certain assumed rates, are calculated to be sufficient to meet the
various policy and contract obligations as they mature. These laws specify that the reserves shall not be less than reserves
calculated using certain specified mortality and morbidity tables, interest rates, and methods of valuation required for statutory
accounting.
The reserves reported in our financial statements contained herein are calculated in conformity with GAAP and differ from
those specified by the laws of the various states and reported in the statutory financial statements of our insurance subsidiaries.
These differences result from the use of mortality and morbidity tables and interest assumptions which we believe are more
representative of the expected experience for these policies than those required for statutory accounting purposes and also result
from differences in actuarial reserving methods.
11
The assumptions we use to calculate our reserves are intended to represent an estimate of experience for the period that policy
benefits are payable. If actual experience is equal, or favorable, to our reserve assumptions, then reserves should be adequate to
provide for future benefits and expenses. If experience is less favorable than the reserve assumptions, additional reserves may
be required. The key experience assumptions include claim incidence rates, claim resolution rates, mortality and morbidity
rates, policy persistency, interest rates, premium rate increases, and any applicable policy benefit offsets, including those for
social security and other government-based welfare benefits. We periodically review our experience and update our policy
reserves for new issues and reserves for all claims incurred, as we believe appropriate.
The consolidated statements of income include the annual change in reserves for future policy and contract benefits. The
change reflects a normal accretion for premium payments and interest buildup and decreases for policy terminations such as
lapses, deaths, and benefit payments. If policy reserves using best estimate assumptions as of the date of a test for loss
recognition are higher than existing policy reserves net of any deferred acquisition costs, the increase in reserves necessary to
recognize the deficiency is also included in the change in reserves for future policy and contract benefits.
For further discussion of reserves, including anticipated changes to GAAP reserve requirements as a result of the upcoming
adoption of Accounting Standards Update 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts
(ASU 2018-12), refer to "Risk Factors" contained herein in Item 1A, "Critical Accounting Estimates", "Accounting
Developments", and the discussion of segment operating results included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained herein in Item 7, and Notes 1 and 6 of the "Notes to Consolidated
Financial Statements" contained herein in Item 8.
Investments
Investment activities are an integral part of our business, and profitability is significantly affected by investment results. We
segment our invested assets into portfolios that support our various product lines. Generally, our investment strategy for our
portfolios is to match the effective asset cash flows and durations with related expected liability cash flows and durations to
consistently meet the liability funding requirements of our businesses. We seek to earn investment income while assuming risk
in a prudent and selective manner, subject to the constraints of quality, liquidity, diversification, and regulatory considerations.
Our overall investment philosophy is to invest in a portfolio of high quality assets that provide investment returns consistent
with that assumed in the pricing of our insurance products. Assets are invested predominately in fixed maturity securities.
We manage our asset and liability cash flow and duration match to manage interest rate risk. We may redistribute investments
among our different lines of business, when necessary, to adjust the cash flow and/or duration of the asset portfolios to better
match the cash flow and duration of the liability portfolios. Asset and liability portfolio modeling is updated on a quarterly
basis and is used as part of the overall interest rate risk management strategy. Cash flows from the in-force asset and liability
portfolios are projected at current interest rate levels and at levels reflecting an increase and a decrease in interest rates to obtain
a range of projected cash flows under the different interest rate scenarios. These results enable us to assess the impact of
projected changes in cash flows and duration resulting from potential changes in interest rates. Testing the asset and liability
portfolios under various interest rate scenarios enables us to choose what we believe to be the most appropriate investment
strategy, as well as to limit the risk of disadvantageous outcomes. Although we test the asset and liability portfolios under
various interest rate scenarios as part of our modeling, the majority of our liabilities related to insurance contracts are not
interest rate sensitive, and we therefore have minimal exposure to policy withdrawal risk. Our determination of investment
strategy relies on long-term measures such as reserve adequacy analysis and the relationship between the portfolio yields
supporting our various product lines and the aggregate discount rate assumptions embedded in the reserves. We also use this
analysis in determining hedging strategies and utilizing derivative financial instruments to manage interest rate risk and the risk
related to matching duration for our assets and liabilities. We do not use derivative financial instruments for speculative
purposes.
Refer to "Risk Factors" contained herein in Item 1A; "Critical Accounting Estimates" and the discussion of investments in
"Management's Discussion and Analysis of Financial Condition and Results of Operations" contained herein in Item 7;
"Quantitative and Qualitative Disclosures About Market Risk" herein in Item 7A; and Notes 1, 2, 3, and 4 of the "Notes to
Consolidated Financial Statements" contained herein in Item 8 for information on our investments and derivative financial
instruments.
Ratings
AM Best, Fitch Ratings (Fitch), Moody's Investors Service (Moody's), and Standard & Poor's Ratings Services (S&P) are
among the third parties that assign issuer credit ratings to Unum Group and financial strength ratings to our insurance
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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.
Rating agencies assign an outlook statement of "positive," "negative," or "developing" to indicate an intermediate-term trend in
credit fundamentals which could lead to a rating change. "Positive" means that a rating may be raised, "negative" means that a
rating may be lowered, and "developing" means that a rating may be raised or lowered with equal probability. Alternatively, a
rating may have a "stable" outlook to indicate that the rating is not expected to change.
"Credit watch" or "under review" highlights the potential direction of a short-term or long-term rating. It focuses on identifiable
events and short-term trends that cause a rating to be placed under heightened surveillance by a rating agency. Events that may
trigger this action include mergers, acquisitions, recapitalizations, regulatory actions, criteria changes, or operating
developments. Ratings may be placed on credit watch or under review when an event or a change in an expected trend occurs
and additional information is needed to evaluate the current rating level. This status does not mean that a rating change is
inevitable, and ratings may change without first being placed on a watch list. A rating is not a recommendation to buy, sell, or
hold securities and may be subject to revision or withdrawal at any time by the rating agency. Each rating should be evaluated
independently of any other rating.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Ratings" contained herein in
Item 7 for our current outlook, issuer credit, and financial strength ratings. See also further discussion in "Risk Factors"
contained herein in Item 1A.
Competition
There is significant competition among insurance companies for the types of products we sell. We are operating in a dynamic
competitive environment of both traditional and non-traditional competitors, with changes in product offerings, enrollment
services, and technology solutions. We believe that the principal competitive factors affecting our business are quality of the
customer experience regarding service and claims management, integrated product choices, enrollment capabilities, price,
financial strength ratings, claims-paying ratings, and a solution to allow customers to comply with the changing laws and
regulations related to family medical leave benefits.
Our principal competitors for our products include the largest insurance companies in the employee benefits industry as well as
regional companies offering specialty products. Some of these companies have more competitive pricing or have higher
claims-paying ratings. Some may also have greater financial resources with which to compete.
In the United Kingdom and Poland, where we sell both individual and group products, we compete with a mix of large
internationally recognized providers and strong local carriers.
All areas of the employee benefits markets are highly competitive due to the yearly renewable term nature of certain of our
products and the large number of insurance companies offering products in this market. There is a risk that our customers may
be able to obtain more favorable terms or improved technology solutions from competitors in lieu of renewing coverage with
us. The effect of competition may, as a result, adversely affect the persistency of these and other products, as well as our ability
to sell products in the future.
We must attract and retain independent agents and brokers to actively market our products. Strong competition exists among
insurers for agents and brokers. We compete with other insurers for sales agents and brokers primarily on the basis of our
product offerings, financial strength, support services, and compensation. Sales of our products could be materially adversely
affected if we are unsuccessful in attracting and retaining agents and brokers.
For further discussion, refer to "Risk Factors" contained herein in Item 1A.
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Regulation
We and our subsidiaries are subject to extensive and comprehensive supervision and regulation in the United States, the United
Kingdom, and Poland. The laws and regulations with which we must comply are complex and subject to change. New or
existing laws and regulations may become more restrictive or otherwise adversely affect our operations.
Insurance Regulation and Oversight
Our U.S. insurance subsidiaries are subject to regulation and oversight by insurance regulatory authorities in the jurisdictions in
which they do business. State insurance regulators in the U.S. generally have broad powers with respect to all aspects of the
insurance business, including the power to: license and examine insurance companies; regulate and supervise sales practices
and market conduct; license agents and brokers; approve policy forms; approve premium rates and subsequent increases thereon
for certain insurance products; establish reserve requirements and solvency standards; place limitations on shareholder
dividends; prescribe the form and content of required financial statements and reports; regulate the types and amounts of
permitted investments; regulate the use and disclosure of personal information; and regulate reinsurance transactions. Our U.S.
insurance subsidiaries are examined periodically by their states of domicile and by other states in which they are licensed to
conduct business. The domestic examinations have traditionally emphasized financial matters from the perspective of
protection of policyholders, but they can and have covered other subjects that an examining state may be interested in
reviewing, such as market conduct issues and reserve adequacy. Examinations by non-domestic states more typically focus on
market conduct, such as a review of sales practices, including the content and use of advertising materials and the licensing and
appointing of agents and brokers, as well as underwriting, claims, and customer service practices, and identification and
handling of unclaimed property to determine compliance with state laws. Our U.S. insurance subsidiaries are also subject to
assessments by state insurance guaranty associations to cover the proportional cost of insolvent or failed insurers.
We are also regulated by the U.S. Department of Labor (DOL) on a national basis, primarily for the protection of policyholders.
The DOL enforces a comprehensive federal statute that regulates claims paying fiduciary responsibilities and reporting and
disclosure requirements for most employee benefit plans.
Our U.K. insurance subsidiary, Unum Limited, is subject to dual regulation by the Prudential Regulation Authority (PRA) and
the Financial Conduct Authority (FCA). The PRA oversees the financial health and stability of financial services firms and is
responsible for the prudential regulation and day-to-day supervision of insurance companies. The FCA seeks to protect
consumers and oversees financial services products and practices, including those governing insurance companies in the U.K.
On January 31, 2020, an official bill was passed formalizing the withdrawal of the U.K. from the European Union (EU). A deal
was reached on December 24, 2020, on the future trading relationship with the EU, which focused primarily on the trading of
goods rather than the U.K.’s service sector. A memorandum of understanding on regulatory cooperation was signed by the
U.K. and EU in March 2021, but no agreement on the equivalence of the regulatory regimes has yet been reached. The U.K.
government is now reviewing the regulatory framework of financial services companies which may result in changes to U.K.
regulatory capital or U.K. tax regulations, which is not expected until later in 2023. We do not expect that the underlying
operations of our U.K. business, nor the Polish business which is in the EU, will be significantly impacted by the withdrawal,
but it is possible that we may experience some short-term volatility in financial markets, which could impact the fair value of
investments, our solvency ratios, or the British pound sterling to dollar exchange rate.
Our Polish insurance subsidiary, Unum Zycie TUiR, is subject to regulation by the Komisja Nadzoru Finansowego (KNF) of
the Financial Supervision Authority (FSA) in Poland. The KNF oversees the financial health and stability of financial services
firms and is responsible for the prudential regulation and day-to-day supervision of insurance companies and other financial
institutions.
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Capital Requirements
Risk-based capital (RBC) standards for U.S. life insurance companies are prescribed by the National Association of Insurance
Commissioners (NAIC). The domiciliary states of our U.S. insurance subsidiaries have all adopted a version of the NAIC RBC
Model Act, which prescribes a system for assessing the adequacy of statutory capital and surplus for all life and health insurers.
The basis of the system is a risk-based formula that applies prescribed factors to the various risk elements in a life and health
insurer's business to report a minimum capital requirement proportional to the amount of risk assumed by the insurer. The life
and health RBC formula is designed to measure annually (i) the risk of loss from asset defaults and asset value fluctuations, (ii)
the risk of loss from adverse mortality and morbidity experience, (iii) the risk of loss from a mismatch in asset and liability cash
flows due to changing interest rates, and (iv) business risks. The formula is used as an early warning tool to identify companies
that are potentially inadequately capitalized. The formula is intended to be used as a regulatory tool only and is not intended as
a means to rank insurers generally. In 2022, the NAIC adopted changes to the C-2 mortality factors, including a more granular
structure and updated mortality risk factors. These changes were effective for 2022 year-end reporting and reduced our capital
requirements for the business.
The NAIC continues to review the state-based solvency regulation framework to identify opportunities to respond to national
and international insurance regulatory and solvency developments. The topics of its review include capital requirements,
governance and risk management, statutory accounting and financial reporting, and reinsurance. This ongoing review has
resulted in changes to U.S. insurance regulation and solvency standards, including those for our U.S. insurance subsidiaries.
One of the outcomes of the NAIC's review was the adoption of the NAIC Risk Management and Own Risk and Solvency
Assessment (ORSA) Model Act which, following enactment at the state level, requires insurers to provide, at least annually, a
group-level perspective on the risks of the current and future business plans and the sufficiency of capital to support those risks.
All states where our traditional U.S. insurance subsidiaries are domiciled have enacted ORSA requirements, and we file an
ORSA summary report annually with the applicable insurance regulators.
The NAIC has also developed a group capital calculation (GCC) intended to be used by U.S. regulators as a tool to assess the
risks and financial position of insurance groups, including any non-insurance subsidiaries. The NAIC amended the Model
Holding Company Act and Regulation to adopt the GCC and implement an annual GCC filing requirement. Our lead state
regulator, the Maine Bureau of Insurance, adopted the NAIC GCC standards in 2022. We do not expect the new standards to
have a material impact on our capital management.
We are also monitoring the International Association of Insurance Supervisors' (IAIS) development of new capital requirements
applicable to Internationally Active Insurance Groups (IAIGs). While we are not currently subject to the reforms adopted by
the IAIS, they are a factor influencing the substance and timing of the NAIC's activities around capital.
The NAIC and state insurance regulators continue to examine the industry's use of captive insurance companies to transfer
insurance risk and finance reserves required under current regulations. No changes in the use or regulation of captive reinsurers
have been proposed by the NAIC, and we are unable to predict the extent of any changes that might be made. After the ceding
companies recaptured their respective reinsurance agreements with Northwind Reinsurance Company (Northwind Re) prior to
the first phase of the Closed Block individual disability reinsurance transaction, we placed Northwind Re into dormancy. We
then merged Northwind Re into an affiliate in 2022. Therefore, Fairwind remains our only captive reinsurer. We expect to
continue our strategy of using a captive reinsurer to manage risks while monitoring the NAIC's study and proposed changes in
regulations. See "Reinsurance" contained herein in this Item 1 for further discussion.
The PRA has statutory requirements, including capital adequacy and liquidity requirements and minimum solvency margins, to
which Unum Limited must adhere as part of the provisions of Solvency II, an EU directive that is part of retained U.K. law
pursuant to the European Union (Withdrawal) Act 2018, which prescribes capital requirements and risk management standards
for the European insurance industry. Our U.K. holding company is also subject to the Solvency II requirements relevant to
insurance holding companies, while its subsidiaries (the Unum UK Solvency II Group), which includes Unum Limited, are
subject to group supervision under Solvency II. The Unum UK Solvency II Group received approval from the U.K. PRA to use
its own internal model for calculating regulatory capital and also received approval for certain associated regulatory
permissions including transitional relief which applies until January 1, 2032. In connection with the recent exit from the EU,
the U.K. government is reviewing the regulatory framework of financial services companies which may result in changes to
U.K. regulatory capital or U.K. tax regulations.
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See further discussion in "Risk Factors" contained herein in Item 1A and "Executive Summary," "Liquidity and Capital
Resources" contained herein in Item 7 and Note 16 of the "Notes to Consolidated Financial Statements" contained herein in
Item 8.
Insurance Holding Company Regulation
We and our U.S. insurance subsidiaries (excluding captive reinsurers) are subject to regulation under the insurance holding
company laws in the states in which our insurance subsidiaries are domiciled, which currently include Maine, Massachusetts,
New York, South Carolina, and Tennessee. These laws generally require each insurance company that is domiciled in the state
and a member of an insurance holding company system to register with the insurance department of that state and to furnish at
least annually financial and other information about the operations of companies within the holding company system, including
information concerning capital structure, ownership, management, financial condition, and certain intercompany transactions.
Transactions between an insurer and affiliates in the holding company system generally must be fair and reasonable and, if
material, require prior notice and approval by the domiciliary state insurance regulator.
In addition, such laws and regulations restrict the amount of dividends that may be paid by our insurance subsidiaries to their
respective shareholders, including our Company and certain of our intermediate holding company subsidiaries. See further
discussion in "Risk Factors" contained herein in Item 1A and "Liquidity and Capital Resources - Cash Available from
Subsidiaries" contained herein in Item 7.
The NAIC has adopted the Corporate Governance Annual Disclosure Model Act and the Corporate Governance Annual
Disclosure Model Regulation, which require U.S. insurers to disclose detailed information regarding their governance practices.
The model act and regulation must be adopted by individual state legislatures and insurance regulators in order to be effective
in a particular state. All of the states in which our insurance subsidiaries are domiciled have adopted a requirement to file a
corporate governance annual disclosure similar to the model act and regulations.
The laws of most states, including the states in which our insurance subsidiaries are domiciled (or deemed to be commercially
domiciled), require regulatory approval of a change in control of an insurance company or its holding company. Where these
laws apply to us, there can be no effective change in control of our Company or of any of our insurance subsidiaries unless the
person seeking to acquire control has filed a statement containing specified information with the appropriate insurance
regulators and has obtained their prior approval of the proposed change. The usual measure for a presumptive change of
control pursuant to these laws is the acquisition of 10 percent or more of the voting stock of an insurance company or its
holding company, although this presumption is rebuttable. Consequently, a person acquiring 10 percent or more of the voting
stock of an insurance company or its holding company without the prior approval of the insurance regulators in the state(s) of
domicile of the insurance company(ies) sought to be acquired (or whose holding company is sought to be acquired) will be in
violation of these laws. Such a person may also be subject to one or more of the following actions: (i) injunctive action
requiring the disposition or seizure of those shares by the applicable insurance regulators; (ii) prohibition of voting of such
shares; and (iii) other actions determined by the relevant insurance regulators. Further, many states' insurance laws require that
prior notification be given to state insurance regulators of a change in control of a non-domiciled insurance company doing
business in the state. These pre-notification statutes do not authorize the state insurance regulators to disapprove the change in
control; however, they do authorize regulatory action in the affected state if particular conditions exist, such as undue market
concentration. Any future transactions that would constitute a change in control of our Company or of any of our insurance
subsidiaries may require prior notification in those states that have adopted pre-notification laws.
These laws may discourage potential acquisition proposals and may delay, deter, or prevent a change in control of our
Company, including through transactions, and in particular unsolicited transactions, that some or all of our shareholders might
consider to be desirable.
Information Security and Privacy Regulation
A growing number of federal, state, and foreign laws and regulations require companies, including insurance companies, to
adopt measures designed to protect the security and privacy of personal information collected during the course of operations.
These laws and regulations vary across jurisdictions.
Specifically, state insurance laws govern the collection, use and disclosure of personal information in the context of providing
insurance products and services. Certain of our insurance products also are subject to the Health Insurance Portability and
Accountability Act, which is enforced by the U.S. Department of Health and Human Services and regulates the disclosure and
use of protected health information. Generally, these laws require insurers to give policyholders notice about the insurer’s
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privacy practices, place restrictions on how the insurer can use and disclose personal information, require the insurer to enact
certain cybersecurity measures to protect the data, and obligate insurers to notify individuals and regulators in certain cases
when personal data is compromised.
Cybersecurity is an area of significant, and increasing, focus of insurance regulators. For example, the NAIC's Insurance Data
Security Model Law (the Cybersecurity Model Law), enacted in over twenty states, requires insurers to implement
cybersecurity measures and develop cyber incident response plans. The New York State Department of Financial Services'
cybersecurity regulation contains provisions similar to the Cybersecurity Model Law, in addition to more prescriptive
cybersecurity obligations.
States are also adopting laws and regulations that govern the collection, processing, storage, and destruction of personal
information outside the context of providing insurance products. Several states have enacted comprehensive consumer privacy
laws, and other states are considering passing similar laws. Currently, significant portions of our business are exempt from the
requirements of these laws, but we cannot be certain that will continue to be the case as additional laws are adopted and existing
laws are amended.
The General Data Protection Regulation of the European Union (EU) and the U.K. General Data Protection Regulation
(collectively referred to as "the GDPR") establish the legal framework for our EU and U.K. entities that collect and process
information from individuals who reside in the EU and U.K., respectively. The GDPR is a comprehensive set of data protection
rules that gives individuals certain rights to their personal data and places obligations on organizations that process personal
data.
We continuously monitor federal, state, and foreign legislative and regulatory developments to understand their potential impact
on our profitability and resources.
Other Laws and Regulations
We are subject to the U.S. federal laws and regulations generally applicable to public companies, including the rules and
regulations of the Securities and Exchange Commission (SEC) and the New York Stock Exchange relating to public reporting
and disclosure, accounting and financial reporting, corporate governance, and securities trading. Further, the Sarbanes-Oxley
Act of 2002, and rules and regulations adopted under this regulation, have increased the requirements for us and other public
companies in these and other areas.
The USA PATRIOT Act of 2001 (Patriot Act) contains anti-money laundering and financial transparency laws and mandates
the implementation of various regulations applicable to broker-dealers and other financial services companies, including
insurance companies. The Patriot Act seeks to promote cooperation among financial institutions, regulators, and law
enforcement entities in identifying parties that may be involved in terrorism or money laundering. The National Defense
Authorization Act for Fiscal Year 2021 (NDAA) makes the most significant changes to the U.S. anti-money laundering laws
since the Patriot Act. The NDAA requires many U.S. companies to report their beneficial owners and establishes a new
whistleblower program. We are not subject to the NDAA’s requirements but will monitor any developments resulting from the
passage of the NDAA. Anti-money laundering laws outside of the United States contain some similar provisions.
Additionally, other federal laws and regulations, including the Foreign Corrupt Practices Act and regulations issued by the
Office of Foreign Assets Control, as well as the U.K.'s Bribery Act of 2010, have increased requirements relating to identifying
customers, prohibiting transactions with certain organizations or individuals, watching for and reporting suspicious transactions,
responding to requests for information by regulatory authorities and law enforcement agencies, sharing information with other
financial institutions, and requiring the implementation and maintenance of internal practices, procedures, and controls.
Enacted in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) effected comprehensive
changes to the regulation of financial services in the United States. Dodd-Frank directed various government agencies and
bodies to promulgate regulations implementing the law, many of which remain to be completed.
On October 26, 2022, the SEC adopted final rules requiring the recovery of erroneously awarded incentive-based
compensation. These rules were adopted pursuant to portions of the Dodd-Frank Act that previously directed the SEC to
regulate and require public companies to implement a compensation recovery policy. The new rules direct national securities
exchanges to establish listing standards that require each listed issuer to adopt and disclose a policy, known as a clawback
policy, providing for the recovery of any erroneously awarded incentive-based compensation from current and former executive
officers in the event of a required accounting restatement due to material noncompliance with financial reporting requirements
under the securities laws. The clawback policy would apply to compensation received during the three-year period preceding
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the date the issuer is required to prepare the accounting restatement. We will adopt and disclose a formal policy by the required
effective date once standards are set by the national securities exchanges. We continue to monitor the political, legislative, and
regulatory environment, where possible amendments to various provisions of Dodd-Frank are under discussion.
We are subject to income, employment, premium, excise and other taxes related to both our U.S. and our foreign operations.
On August 16, 2022, the Inflation Reduction Act (IRA) was signed into law in the U.S. and includes certain corporate tax
provisions effective January 1, 2023. It imposes a new 15 percent corporate alternative minimum tax (CAMT) on adjusted
financial statement income (AFSI) on corporations that have average AFSI over $1.0 billion in any prior three-year period,
starting with years 2020 to 2022. We anticipate that our company will be an applicable corporation as early as 2023. We do
not expect that any CAMT incurred would impact earnings since it would be offset with a credit toward regular income tax in
subsequent years. We continue to monitor the ongoing guidance issued by the United States Treasury. The IRA also imposes a
one percent excise tax on the fair market value of corporate stock repurchases after December 31, 2022.
On June 10, 2021, the Finance Act 2021 was enacted in the U.K., which establishes a U.K. corporate tax rate of 25 percent and
is effective April 1, 2023. On July 22, 2020, the Finance Act 2020 was enacted, which established a U.K. corporate tax rate of
19 percent and was retroactively effective April 1, 2020.
See "Executive Summary" and "Liquidity and Capital Resources" contained herein in Item 7 and Notes 7 and 16 of the "Notes
to Consolidated Financial Statements" contained herein in Item 8 for discussion of the impact to our financial position and
results of operations as a result of these changes.
Federal, foreign, and state tax laws and regulations are subject to change, and any such change could materially impact our
federal, foreign, or state taxes and reduce profitability as well as capital levels in our insurance subsidiaries. We continually
monitor tax legislative and regulatory developments to understand their potential impact on our profitability.
Regulatory focus on the risks posed by climate change is increasing, with some regulators now requiring that the Company
integrate consideration of the risks of climate change into our governance and risk management frameworks. We expect the
regulatory focus in this area to continue.
For further discussion of regulation, refer to "Risk Factors" contained herein in Item 1A.
Geographic Areas
Adjusted operating revenue, which excludes net investment gains and losses, for our Unum International segment was
approximately 7 percent of our consolidated adjusted operating revenue in both 2022 and 2021, and approximately 6 percent in
2020. As of December 31, 2022, total assets equaled approximately 5 percent of consolidated assets and total liabilities equaled
approximately 5 percent of consolidated liabilities for our Unum International segment. Fluctuations in the U.S. dollar relative
to the local currencies of our Unum International segment will impact our reported operating results. See "Risk Factors"
contained herein in Item 1A and "Quantitative and Qualitative Disclosures About Market Risk" contained herein in Item 7A for
further discussion of fluctuations in foreign currency exchange rates. See "Reporting Segments" contained herein in this Item
1; "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained herein in Item 7; and
Note 13 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion of Unum
International's operating results.
Human Capital Resources
Human Capital
The Company is built on the promise of helping the working world thrive throughout life’s moments, an inspiring purpose that
requires harnessing the creativity and energy of our employees. As of December 31, 2022, we employed 10,937 employees, of
which approximately 10,665 are full-time employees. Approximately 87 percent of our employees are in the United States, and
the remaining 13 percent are international.
We have experienced lower voluntary turnover, which, excluding Poland, decreased from 15.6 percent in 2021 to 14.9 percent
in 2022 and remains below the U.S. Bureau of Labor Statistics' voluntary turnover benchmark of 17.8 percent for the U.S.
finance and insurance industry. Recognizing that the marketplace for talent has remained competitive, we made additional
investments throughout the year to help retain talent in roles experiencing notable market pressure. This included targeted
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compensation adjustments to selected roles and individuals across the enterprise, based on external benchmarks and internal
data.
While continuously monitoring workplace safety, our offices were open during 2022 and the majority of employees returned to
the office utilizing a hybrid schedule. Our flexible approach maximizes the benefits of the office, such as networking, learning,
and collaborative problem solving, while offering employees the flexibility to design an in-office schedule based on work and
life obligations. This approach ensures that we continue to grow, change, and thrive as an enterprise by helping to support a
diverse workforce with a focus on employee well-being. Additionally, it supports our commitment to build an inclusive
culture, creating diversity in how and where we work. As we continue to gain insights based on our experience, we may
continue to adjust our hybrid approach. Our international locations each continue to follow their established strategies based on
their local environment.
Compensation and Benefits
We provide compensation and benefits programs which support our employees’ health, wealth, and life. In addition to
competitive pay, other programs (which vary by country/region) include: annual bonus and employee recognition; stock awards
and stock purchase; life, medical, pharmacy, health reimbursement accounts; telehealth and preventive services; dental, vision,
voluntary benefits and disability insurance; tuition assistance; 401(k) plan, financial education and planning support; student
debt relief; back-up and emergency care services; employee assistance program and family building resources; digital
behavioral health support; paid time off and paid holidays; paid caregiver and parental leave; virtual stress management
resources; onsite and virtual fitness memberships and subsidized healthy food options.
Inclusion and Diversity
Appreciating differences is one of our core values and drives how we deliver on our purpose and achieve our goals. We are
committed to creating a culture of belonging where employees can bring their full selves to work and see themselves in every
aspect of our business. We believe the best way to meet the needs of our customers and make better decisions is to reflect their
diversity in our own workforce. Of our 10,937 employees, 67 percent identify as female; and 22 percent, excluding Poland,
identify as members of an ethnic or racially diverse group.
We embrace the unique talents of every team member and help them reach their full potential through our Better with U
inclusion and diversity (I&D) training, focused learning and leadership development programs, and an array of online
resources. In addition, we have a dedicated Office of I&D focused on driving strategies to create a culture where inclusivity is
an expectation for every employee and leader. We partner with diverse stakeholders to increase awareness and provide
guidance that helps operationalize inclusion through resources, programs, and policies that enhance our workforce culture.
Our Inclusion Network plays a critical role in our I&D strategy by helping to identify solutions to inclusion barriers and
advance our I&D initiatives. The Inclusion Network includes our Employee Networks, Business Networks, I&D Advisory
Board, and Ambassadors. Employee Networks are designed to create connection and build community while advancing
belonging and uniqueness across the company. Our current Employee Networks and the employee groups they represent are as
follows: UNITEd (Multicultural); enABLE (Disabilities); bePROUD (LGBTQ+); and upLIFT (Gender Equity). Ambassadors
and Business Networks are liaisons to our business and ensure I&D initiatives are successfully implemented throughout the
enterprise. The Advisory Board reviews and provides recommendations on I&D priorities, helps to remove barriers in
advancing the I&D strategy, and advocates for inclusion and belonging across the enterprise.
We have established an expectation for all people leaders to embed I&D into their performance goals and daily behaviors which
is reinforced throughout the year by leadership. By embracing shared ownership, leaders help drive inclusion at all levels.
Our ability to attract, develop, and retain diverse, top talent is a critical component of our success. We are committed to diverse
recruiting strategies across the enterprise, and we are focused on ensuring that our selection process is inclusive. The talent
acquisition team partners with our Office of I&D to ensure strategies are in place to retain diverse talent through internal
mobility and belonging. We support our recruiters to obtain and maintain certification in diversity recruiting. We partner with
diverse organizations and associations to support diverse hiring at all levels. In addition, our recruiters and hiring managers
receive training focused on unconscious bias in the selection process and actions they can take to avoid it.
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Learning and Development
We place a strong emphasis on training and professional development for all levels of our workforce to ensure that people of
every background have the tools to reach their full potential. All employees have one-to-one coaching sessions with their
managers. On a quarterly basis, managers summarize conversations with meaningful documentation on key accomplishments,
progress toward goals, and other areas of focus, including career development. Managers and employees also review next steps
to help align activities with company goals. We believe continuous coaching conversations help all employees and managers
work more effectively.
We offer numerous employee development programs, including:
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Accelerated Leadership Program: This program focuses on accelerating the leadership development of high-potential
employees while they remain in their current roles. The goal of this program is to prepare the participants for
promotion or strategic lateral movement within 12-18 months of graduation.
Equity in Leadership Program: This program focuses on championing equity and opportunity by preparing racially
diverse employees to advance to higher levels of leadership.
Actuarial Development Program (ADP), Accounting and Finance Development Program (AFDP) and Professional
Development Program (PDP): These are multi-year rotational programs that focus on preparing participants to
become future leaders of our company. The ADP and the AFDP focus on developing both leadership and finance-
related technical skills, while the PDP focuses primarily on developing leadership combined with broad operational
experience.
Leader Academy: An online program available to managers, leaders, or any employee interested in moving into a
management role. Each quarter, 12-week cohorts allow participants to learn about interpersonal effectiveness,
elevating performance, strategic decision-making, and leading change.
We recognize that our employees are an important asset. Therefore, it is imperative that we continue to focus on the growth
and development of our workforce in a meaningful way and provide them with the necessary support to achieve their career
goals.
Employee Engagement
To ensure our employees are engaged and are effectively delivering on our mission and meeting our customers’ needs, we
regularly conduct confidential employee surveys to obtain feedback and gain insights from our employees. These surveys are
thoughtfully considered and actioned by leadership. We are committed to our employees’ growth and development and
embrace the diversity of ideas for improvement. In our employee survey conducted in 2022, 9,272 employees responded and
approximately 75 percent of those employees indicated favorable engagement and would recommend the company as a great
place to work.
Available Information
Our internet website address is www.unum.com. We make available, free of charge, on or through our website our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material
with the Securities and Exchange Commission.
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Information about our Executive Officers
Our executive officers and persons chosen to become executive officers as of the date hereof are listed below. Our executive
officers, who are also executive officers of certain of our principal subsidiaries, were appointed by Unum Group's board of
directors to serve until their successors are chosen and qualified or until their earlier resignation or removal.
Name
Richard P. McKenney
Steven A. Zabel
Michael Q. Simonds
Elizabeth C. Ahmed
Timothy G. Arnold
Puneet Bhasin
Lisa G. Iglesias
Martha D. Leiper
Christopher W. Pyne
Mark P. Till
Age
54
54
49
48
60
60
57
60
53
55
Position
President and Chief Executive Officer and a Director
Executive Vice President, Chief Financial Officer
Executive Vice President, Chief Operating Officer
Executive Vice President, People and Communications
Executive Vice President, Voluntary Benefits and President, Colonial Life
Executive Vice President, Chief Information and Digital Officer
Executive Vice President, General Counsel
Executive Vice President, Chief Investment Officer
Executive Vice President, Group Benefits
Executive Vice President and CEO, Unum International
Mr. McKenney became President in April 2015 and Chief Executive Officer in May 2015. He served as Executive Vice
President and Chief Financial Officer from August 2009 until April 2015, having joined the Company in July 2009. Before
joining the Company, Mr. McKenney served as Executive Vice President and Chief Financial Officer of Sun Life Financial
Inc., an international financial services company, from February 2007, having joined that company as Executive Vice President
in September 2006.
Mr. Zabel became Executive Vice President, Chief Financial Officer in July 2019. He previously served as Senior Vice
President and President, Closed Block Operations from July 2015 to July 2019 and as Senior Vice President, Chief Risk Officer
from August 2013 to July 2015. Prior to joining the Company in August 2013, he served in various senior roles at Genworth
Financial, Inc. from 2004, including Senior Vice President of Long-Term Care Insurance, Chief Financial Officer for Insurance
Products, and Senior Vice President of Corporate Audit Services.
Mr. Simonds was named Executive Vice President, Chief Operating Officer in February 2020. Prior to that, he served as
Executive Vice President, President and Chief Executive Officer, Unum US from July 2013, after having served as Senior Vice
President and Chief Operating Officer, Unum US from June 2012. He previously served as Senior Vice President, Growth
Operations, Unum US from July 2010, and as Senior Vice President and Chief Marketing Officer, Unum US from March 2008.
Mr. Simonds originally joined a Unum Group predecessor company in 1994, left the Company in 2000 to pursue his MBA, and
rejoined the Company in 2003.
Ms. Ahmed was named Executive Vice President, People and Communications upon joining the Company in October 2018.
She served as Executive Vice President, Chief Human Resources Officer, at AmTrust Financial Services, Inc., a multinational
insurance holding company, from May 2015 to October 2018. Prior to that, she served as Vice President of Human Resources
at Equity Trust Company, a financial services company, from May 2012 to May 2015, and as Senior Vice President of Human
Resources at PNC Bank, a diversified financial services institution, from August 2008 to May 2012.
Mr. Arnold was named Executive Vice President, Voluntary Benefits and President, Colonial Life in February 2020. Prior to
that, he served as Executive Vice President, President and Chief Executive Officer, Colonial Life from January 2015, and
before that, as Executive Vice President, President, Colonial Life from July 2014. He previously served as Senior Vice
President, Sales and Marketing, Colonial Life from August 2012, as Senior Vice President, Chief Operations Officer, Colonial
Life from July 2011, and as Senior Vice President, Integrated Underwriting, Unum US from May 2010.
Mr. Bhasin was named Executive Vice President, Chief Information and Digital Officer after joining the Company in March
2018. He served as Executive Vice President, Corporate Operations and Recycling at Waste Management, Inc., a waste
management environmental services provider, from November 2015 to March 2017. While at Waste Management, he also
served as Senior Vice President, Corporate Operations from November 2014, Chief Information Officer and Senior Vice
President, Technology, Logistics and Customer Service from August 2012, and Senior Vice President and Chief Information
Officer from December 2009.
21
Ms. Iglesias was named Executive Vice President, General Counsel upon joining the Company in January 2015. She served as
Senior Vice President, General Counsel and Secretary of WellCare Health Plans, Inc., a managed care company, from February
2012 to December 2014, having first joined WellCare in February 2010 as Vice President, Securities and Assistant General
Counsel. Prior to that, she served as General Counsel and Corporate Secretary for Nordstrom, Inc., a fashion specialty retailer,
from 2007 to 2008.
Ms. Leiper was appointed Executive Vice President, Chief Investment Officer of the Company in October 2019. She joined the
Company from USAA, a provider of financial services to the military community, where she served as Senior Vice President,
Corporate Finance and Enterprise Money Movement from October 2016 to October 2019 and, before that, as Senior Vice
President, Corporate Finance and Investments from May 2015 to September 2016 and Senior Vice President, Chief Investment
Officer from May 2010 to May 2015. Ms. Leiper previously worked at Unum Group as Senior Vice President and Deputy
Chief Investment Officer from January 2006 to May 2010.
Mr. Pyne was named Executive Vice President, Group Benefits in February 2020. He previously served as Senior Vice
President, Growth Operations and Distribution from June 2018 to January 2020 and as Senior Vice President, Sales and Client
Management from June 2011 to June 2018. Before that, Mr. Pyne held positions of increasing responsibility within the
Company's U.S. distribution organization, including Vice President, Sales from January 2011 to May 2011 and Vice President,
Managing Director from January 2008 to December 2010.
Mr. Till was named Executive Vice President and CEO, Unum International in April 2021. He served as Executive Vice
President and CEO Designate, Unum International after joining Unum in February 2021. Prior to joining the Company, Mr.
Till served from July 2020 to January 2021 as Managing Director, Platform Solutions at Aegon, an international financial
services organization, in the U.K. (Aegon UK). While at Aegon UK, he served as Managing Director, Digital Solutions from
May 2018 to July 2020, as Chief Distribution and Marketing Officer from June 2016 to May 2018, and as Managing Director,
Customer Value Management from September 2015 to June 2016. He previously served as Head of Personal Investing and
Marketing Director for Fidelity International from January 2012 to February 2015.
ITEM 1A. RISK FACTORS
Overview
We face a wide range of risks, and our continued success depends on our ability to identify and appropriately manage our risk
exposures. Discussed below are factors that may adversely affect our business, results of operations, or financial condition.
Any one or more of the following factors may cause our actual results for various financial reporting periods to differ materially
from those expressed in any forward-looking statements made by or on behalf of the Company, including those in this
document or made by us elsewhere, such as in earnings release investor calls, investor conference presentations, or press
releases. See "Cautionary Statement Regarding Forward-Looking Statements" contained herein on page 1.
Insurance Risks
We provide a broad array of disability, long-term care, group life, and voluntary insurance products that are affected by
many factors, and changes in any of those factors may adversely affect our results of operations, financial condition, or
liquidity.
Disability Insurance
Disability insurance may be affected by a number of social, economic, governmental, competitive, and other factors. Changes
in societal attitudes, such as work ethic, motivation, or stability, can significantly affect the demand for and underwriting results
from disability products.
Both economic and societal factors can affect claim incidence and recoveries for disability insurance. Claim incidence and
claim recovery rates may be influenced by, among other factors, the rate of unemployment and consumer confidence. Claim
incidence and claim recovery rates may also be influenced by the emergence of new infectious diseases or illnesses. Claim
durations may be extended by medical improvements which could extend life expectancies. 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.
22
Within the group disability market, pricing and renewal actions can be taken in response to higher claim rates and higher
administrative expenses. 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. The pricing actions available in the individual disability market differ among product classes.
Our individual noncancelable disability policies, in which the policy is guaranteed to be renewable through the life of the policy
at a fixed premium, do not permit us to adjust premiums on our in-force business. Guaranteed renewable contracts that are not
noncancelable can be repriced to reflect adverse experience, but rate changes cannot be implemented as quickly as in the group
disability market.
Long-term Care Insurance
Long-term care insurance can be affected by a number of demographic, medical, economic, governmental, competitive, and
other factors. Because long-term care insurance is a relatively new product for the insurance industry and is long-duration in
nature, there is not as much historical data as is available for our other products, especially at advanced ages. This creates a
level of uncertainty in properly pricing the product and using appropriate assumptions when establishing reserves. Long-term
care insurance is guaranteed renewable and can be repriced to reflect adverse experience, but the repricing is subject to
regulatory approval by our states of domicile and may also be subject to approval by jurisdictions in which our policyholders
reside. The rate approval process can affect the length of time in which the repricing can be implemented, if at all, and the rate
increases ultimately approved may be unfavorable relative to assumptions used to establish our reserves. We monitor our own
experience and industry studies concerning morbidity, mortality, and policyholder terminations to understand emerging trends.
Changes in actual experience relative to our expectations may adversely affect our profitability and reserves. To the extent
mortality improves for the general population, and life expectancies increase, the period for which a claimant receives long-
term care benefits may lengthen and the associated impact of advanced aging of policyholders may cause an increase in claims
incidence. Medical advances may continue to have an impact on claim incidence and duration, both favorable and unfavorable.
Due to the long duration of the product, the timing and/or amount of our investment cash flows are difficult to match to those of
our maturing liabilities.
Group Life Insurance
Group life insurance may be affected by the characteristics of the employees insured, the amount of insurance employees may
elect voluntarily, our risk selection process, our ability to retain employer groups with favorable risk characteristics, the
geographical concentration of employees, and mortality rates. Claim incidence may also be influenced by unexpected
catastrophic events such as terrorist attacks, natural disasters, and pandemic health events, which may also affect the cost of and
availability of reinsurance coverage. Within the group life market, pricing and renewal actions can be taken in response to
higher claim rates and higher administrative expenses. However, these actions take time to implement, and there is a risk that
the market will not sustain increased prices.
Voluntary Products
Voluntary products sold in the workplace may be affected by the characteristics of the employees insured, the level of employee
participation and the amount of insurance the employees elect, our risk selection process, and our ability to retain employer
groups with favorable risk characteristics. A portion of our voluntary life insurance products include interest sensitive forms of
insurance which contain a guaranteed minimum interest crediting rate. It is possible that our investment returns could be lower
than the guaranteed crediting rate. While a significant portion of our non-life contracts are optionally renewable, some are
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guaranteed renewable and can be repriced to reflect adverse experience, but rate changes cannot be implemented as quickly as
for group disability and group life products.
Actual experience may differ from our reserve assumptions which may adversely affect our results of operations or financial
condition.
Historical results may not be indicative of future performance due to, among other things, changes in our mix of business,
repricing of certain lines of business, or any number of economic cyclical effects on our business. Reserves, whether calculated
under GAAP or statutory accounting principles, do not represent an exact calculation of future benefit liabilities but are instead
estimates made by us using actuarial and statistical procedures. Actual experience may differ from our reserve assumptions.
There can be no assurance that our reserves will be sufficient to fund our future liabilities in all circumstances. Future loss
development may require reserves to be increased, which would adversely affect earnings in current and future periods. Life
expectancies may increase, which could lengthen the time a claimant receives disability or long-term care benefits and could
result in a change in mortality assumptions and an increase in reserves for these and other long-tailed products. Adjustments to
reserve amounts may also be required in the event of changes from the assumptions regarding future morbidity (which
represents the incidence of claims and the rate of recovery, including the effects thereon of inflation and other societal and
economic factors); premium rate increases; persistency; policy benefit offsets, including those for social security and other
government-based welfare benefits; and interest rates used in calculating the reserve amounts, which could have a material
adverse effect on our results of operations or financial condition.
We have assets which may not be fully recoverable or realizable, which could adversely affect our results of operations or
financial condition.
If our business does not perform well or as initially anticipated in our assumptions, we may be required to accelerate
amortization or recognize an impairment loss on intangible assets or long-lived assets or to establish a valuation allowance
against the deferred income tax asset.
We have intangible assets such as deferred acquisition costs (DAC), value of business acquired (VOBA), and goodwill. DAC
and VOBA are currently amortized based primarily upon expected future premium income of the related insurance policies.
Recoverability testing for DAC and VOBA is performed on an annual basis. Insurance contracts are grouped on a basis
consistent with our manner of acquiring, servicing, and measuring profitability of the contracts. If recoverability testing
indicates that either DAC and/or VOBA are not recoverable, the deficiency is charged to expense. Effective January 1, 2023,
with the adoption of ASU 2018-12, DAC will be amortized on a constant level basis and no longer require recoverability
testing. See "Accounting Developments" included herein in Part 2, Item 7 under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 of the "Notes to Consolidated Financial Statements" contained
herein in Item 8 for additional discussion.
Goodwill is not amortized, but on an annual basis, or more frequently if necessary, we review the carrying amount of goodwill
for indications of impairment, considering in that review the financial performance and other relevant factors. In accordance
with accounting guidance, we test for impairment at either the operating segment level or one level below. In addition, certain
events including, but not limited to, a significant adverse change in legal factors or the business environment, an adverse action
by a regulator or rating agency, or unanticipated competition would cause us to review goodwill for impairment more
frequently than annually.
Long-lived assets, including assets such as real estate, right-of-use assets, and information technology software, also may
require impairment testing to determine whether changes in circumstances indicate that we may be unable to recover the
carrying amount.
We assess our deferred tax assets to determine if they are realizable. Factors in our determination include the performance of
the business, including the ability to generate future taxable income and the fair value of our investment portfolio. Significant
declines in the fair value of our investments could result in the recognition of a valuation allowance on our deferred tax asset. If
based on available information, it is more likely than not that the deferred income tax asset will not be realized, a valuation
allowance is established.
Charges such as accelerated amortization, impairment losses, or the establishment of valuation allowances could have a
material adverse effect on our results of operations or financial condition.
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See "Critical Accounting Estimates" included in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained herein in Item 7, and Note 13 of the "Notes to Consolidated Financial Statements" contained herein in
Item 8 for further discussion.
Market and Credit Risks
Sustained periods of low interest rates in the long-term investment market may adversely affect our reported net investment
income and the discount rates used in pricing our insurance products and projecting our pension obligations, which may
adversely affect our results of operations or financial condition.
Declines in interest rates or sustained periods of low interest rates and yields on fixed income investments may cause the rates
of return on our investment portfolio to decrease more than expected, leading to lower net investment income than assumed in
the pricing and reserving for our insurance products. An interest, or discount, rate is used in calculating reserves and
determining pricing for our insurance products. We set our GAAP discount rate assumptions based on our current and expected
future investment yield for assets supporting the reserves, considering current and expected future market conditions. If the
discount rate assumed in our reserve calculations and our pricing is higher than our future investment returns, our invested
assets may not earn enough investment income to support our future claim payments. In that case, the reserves may eventually
be insufficient, resulting in the need to increase our reserves and/or contribute additional capital to our insurance subsidiaries,
either of which could have a material adverse effect on our results of operations or financial condition.
Effective January 1, 2023, with the adoption of ASU 2018-12, among other changes required by the update, we will be required
to update the discount rate assumption used to set our GAAP reserves at each reporting date using a yield that is reflective of an
upper-medium grade fixed-income instrument. See "Accounting Developments" included herein in Part 2, Item 7 under
"Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional discussion.
We are also required to perform annual statutory adequacy testing that considers multiple interest rate scenarios, to ensure our
statutory reserves continue to meet statutory requirements, which could require us to increase our statutory reserves and/or
contribute additional capital to our insurance subsidiaries.
Our net periodic benefit costs and the value of our benefit obligations for our pension 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 set the discount rate assumption at the measurement date for each of our plans to reflect the yield of a portfolio of high
quality fixed income corporate debt instruments matched against the timing and amounts of projected future benefits. A change
in the discount rate impacts the present value of benefit obligations and our costs. Our expectations for the future investment
returns on plan assets are based on a combination of historical market performance, current market conditions, and future
capital market assumptions obtained from external consultants and economists. The actual rate of return on plan assets is
determined based on the fair value of the plan assets at the beginning and end of the measurement period. Increases or
decreases in long-term interest rates as well as equity market volatility will impact the fair value of our plan assets and may
result in a decrease in the funded status of our pension plans and/or increased pension costs, which may adversely affect our
results of operations, financial condition, or liquidity.
Unfavorable economic or market conditions may result in lower sales, lower premium growth and persistency, higher claims
incidence, unfavorable mortality, longer claims duration, and higher expenses which may adversely affect our results of
operations or financial condition.
We are affected by conditions in the capital markets and the general economy, primarily in the United States, the United
Kingdom, Poland, and to a lesser extent, the broader global financial markets. Negative developments in the capital markets
and/or the general economy could adversely affect our business, including our investment portfolio, and results of operations.
Factors such as unemployment levels, consumer confidence levels, consumer spending, business investment, government
spending, the volatility and strength of the capital markets, inflation, pandemics, and the threat of terrorism all affect the
business and economic environment and, ultimately, the amount and profitability of our businesses. In particular, the recent
high level of inflation may continue to result in higher expenses and negatively affect the discretionary spending of our
customers, which could result in lower sales. More generally, given the nature of our products, in an economic environment
characterized by higher unemployment, lower personal income, reduced consumer spending, and lower corporate earnings and
investment, new product sales may be adversely affected. Our premium growth may also be negatively impacted by lower
25
premium growth from existing customers due to lower salary growth and lower growth in the number of employees covered
under an existing policy. In addition, during such periods we may experience higher claims incidence, longer claims duration,
and/or an increase in policy lapses, any of which could have a material adverse effect on our results of operations or financial
condition.
In addition to interest rate risk as previously discussed, we are exposed to other risks related to our investment portfolio
which may adversely affect our results of operations, financial condition, or liquidity.
Default Risk
Our investment portfolio consists primarily of fixed maturity securities. These securities are issued by both domestic and
foreign entities and are backed either by collateral or the credit of the underlying issuer. Factors such as an economic downturn
or political change in the country of the issuer, a regulatory change pertaining to the issuer's industry, a significant deterioration
in the cash flows of the issuer, unforeseen accounting irregularities or fraud committed by the issuer, widening risk spreads,
ratings downgrades, a change in the issuer's marketplace or business prospects, or other events that adversely affect the issuers
of these securities may result in the issuer defaulting on its obligations.
Our mortgage loan portfolio has default risk. Events or developments, such as economic conditions that impact the ability of
tenants to pay their rents or limit the availability of refinancing, may have a negative effect on our mortgage loan portfolio.
Events or developments that have a negative effect on any particular geographic region or sector may have a greater adverse
effect on an investment portfolio to the extent that the portfolio is concentrated in that region or sector.
A default results in the recognition of an impairment loss on the investment. A default may also adversely affect our ability to
collect principal and interest due to us. The probability of credit downgrades and defaults increases when the fixed income
markets experience periods of volatility and illiquidity.
Credit Spread Risk
Our exposure to credit spreads, which is the yield above comparable U.S. Treasury securities, primarily relates to market price
and cash flow variability associated with changes in credit spreads. A widening of credit spreads may unfavorably impact the
net unrealized gain or loss position of the investment portfolio and may adversely impact liquidity. Credit spread tightening
may reduce net investment income associated with new purchases of fixed income securities.
Valuation Risk
We report our fixed maturity securities and certain other financial instruments at fair value. Valuations may include inputs and
assumptions that are less observable or require greater estimation, particularly during periods of market disruption, resulting in
values which may be less than the value at which the investments may ultimately be sold. Further, rapidly changing and
unprecedented credit and equity market conditions could materially impact the valuation of securities as reported in our
financial statements, and the period to period changes in value could vary significantly. Decreases in value may have a material
adverse effect on our results of operations or financial condition.
We evaluate our investment portfolio for credit losses. There can be no assurance that we have accurately assessed the level of
credit losses taken. Additional credit losses may need to be taken in the future, and historical trends may not be indicative of
future credit losses. Any event reducing the value of our securities may have a material adverse effect on our business, results
of operations, or financial condition.
Market Timing and Liquidity Risk
While 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, there may at times be a lack of appropriate investments in the market which can be
acquired. In particular, due to the long duration of our long-term care product, the timing of our investment cash flows do not
match those of our maturing liabilities. In addition, we may, in certain circumstances, 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. There may also be a limited market for certain of our investments, such as our private equity partnerships, private
placement fixed maturity securities, mortgage loans, and policy loans, which makes them more illiquid. In periods of market
volatility or disruption, other of our securities may also experience reduced liquidity. If events occur wherein we need to sell
26
securities in an unfavorable interest rate or credit environment or need to quickly sell securities which are illiquid, market prices
may be lower than what we might realize under normal circumstances, with a resulting adverse effect on our results of
operations, financial condition, or liquidity.
The effectiveness and utilization of our hedging programs may be affected by changes in forecasted cash flows, the
economic environment, changes in interest rates, capital market volatility, non-performance by our counterparties, changes
in the level of required collateral, or regulation, which may adversely affect our results of operations, financial condition, or
liquidity.
We use derivative financial instruments to help us manage various risks related to our business operations including interest rate
risk, risk related to matching duration for our assets and liabilities, foreign currency risk, credit risk, and equity risk. Factors
associated with derivative financial instruments could adversely affect our results of operations, financial condition, or liquidity.
Ineffectiveness of our hedges due to changes in expected future events, such as the risk created by uncertainty in the economic
environment, changes in forecasted cash flows, or if our counterparties fail or refuse to honor their obligations under these
derivative instruments, may have a material adverse effect on our results of operations or financial condition. Capital market
turmoil may result in an increase in the risk of non-performance by our counterparties, many of which are financial institutions.
Non-performance by our counterparties may force us to unwind hedges, and we may be unable to replace the hedge, thereby
leaving the risk unhedged. Under the terms of our hedging contracts, we are required to post collateral and to maintain a certain
level of collateral, which may adversely affect our liquidity and could subject us to the credit risk of the counterparty to the
extent it holds such collateral. Changes in regulations may have an adverse effect on our ability to execute hedging strategies
due to the increased economic cost of derivatives, primarily as a result of more restrictive collateral requirements.
Reinsurance may not be available or affordable, or reinsurers may be unwilling or unable to meet their obligations under
our reinsurance contracts, which may adversely affect our results of operations or financial condition.
As part of our overall risk management and capital management strategies, we purchase reinsurance for certain risks
underwritten by our various businesses. We also utilize reinsurance to exit certain lines of business. Market conditions beyond
our control determine the availability and cost of reinsurance. Any decrease in the amount of reinsurance will increase our risk
of loss and may impact the level of capital requirements for our insurance subsidiaries, and any increase in the cost of
reinsurance will, absent a decrease in the amount of reinsurance, reduce our results of operations. Accordingly, we may be
forced to incur additional expenses for reinsurance or may be unable to obtain sufficient reinsurance on acceptable terms, which
may adversely affect our ability to write future business, result in the assumption of more risk with respect to the policies we
issue, and increase our capital requirements. The collectability of our reinsurance recoverable is primarily a function of the
solvency of the individual reinsurers. We cannot provide assurance that our reinsurers will pay the reinsurance recoverables
owed to us or that they will pay these recoverables on a timely basis. The insolvency of a reinsurer or the inability or
unwillingness of a reinsurer to comply with the terms of a reinsurance contract may have an adverse effect on our results of
operations or financial condition.
Currency translation could materially impact our reported operating results.
The functional currency of our U.K. and Polish operations is the British pound sterling and the Polish zloty, respectively.
Fluctuations in exchange rates impact our reported financial results, which may be unfavorably affected when the functional
currency weakens. However, it is important to distinguish between translating and converting foreign currency. Except for a
limited number of transactions, we do not actually convert our functional currency into dollars. As a result, we view foreign
currency translation as a financial reporting item and not a reflection of operations or profitability in the U.K or Poland.
See "Reserves for Policy and Contract Benefits" contained herein in Item 1, "Critical Accounting Estimates" included in
"Management's Discussion and Analysis of Financial Condition and Results of Operations" contained herein in Item 7, "Interest
Rate Risk" contained herein in Item 7A, and Notes 1, 2, 3, 4 and 9 of the "Notes to Consolidated Financial Statements"
contained herein in Item 8 for further discussion.
27
Public Health Risks
Pandemics and other public health issues, including COVID-19, can negatively impact certain aspects of our business and,
depending on severity and duration, could have a material adverse effect on our financial position, results of operations,
liquidity and capital resources, and overall business operations.
The COVID-19 pandemic continues to cause disruption to the global economy and has resulted in some unfavorable impacts to
our company as well as the overall insurance industry. Further events that we are unable to control, such as additional virus
mutations, changes in mortality levels, changes in the population impacted by COVID-19, spikes in the number of cases of
COVID-19, and the related responses by government authorities and businesses, continue to present risks to our business. An
increase in the level of deaths related to COVID-19 could result in higher mortality within our insured population. In addition,
we may continue to experience higher claim incidence in our disability products and higher expenses related to our leave
management services.
If economic conditions worsen as a result of a pandemic or other public health issue, that may adversely affect the financial
condition of current or potential customers, which may result in lower sales or other negative impacts to customer purchasing
patterns. If we experience unfavorable developments related to our revenues, benefits, or expenses, we may correspondingly
experience adverse impacts to our overall future profitability and growth, which may alter the timing and magnitude of our
plans for overall business growth. In addition, these unfavorable developments may result in the impairment or write-off of
certain assets such as premiums receivable, goodwill, property and equipment, VOBA, and right-of-use assets, or the
establishment of a valuation allowance regarding the realization of our deferred tax assets.
If economic conditions worsen as a result of a pandemic or other public health issue, that may also result in the inability for
companies to make interest and principal payments on their debt securities or mortgage loans that we hold for investment
purposes. Accordingly, although we maintain a disciplined approach regarding our overall investment strategy, we may still
incur significant losses that can result in a decline in net investment income and/or material increases in credit losses on our
investment portfolio. With respect to commercial real estate, there could be potential impacts to estimates of expected losses
resulting from lower underlying values, reflecting current market conditions at that time.
Although we have access to significant amounts of liquidity, which include a credit facility and our facility agreement for
contingent issuance of senior notes, Federal Home Loan Bank (FHLB) arrangements, and the ability to liquidate certain
investments, it may be insufficient or even inaccessible if we are not in compliance with required covenants under our
borrowing arrangements or if the associated lenders are unable to provide funds. In addition, if investment markets become
illiquid or severely impaired, we may be unable to liquidate our investments in a timely and advantageous manner.
From an operational perspective, our employees, sales associates, brokers, and distribution partners, as well as the workforces
of our vendors, service providers, and counterparties, may be adversely affected by a pandemic or other public health issue,
including government-mandated shutdowns, requests or orders for employees to work remotely, and other social distancing
measures. These measures could result in an adverse impact on our ability to conduct our business, including our ability to sell
our policies and our ability to adjudicate and pay claims in a timely manner. Additionally, our hybrid work environment may
expose us to various additional risks such as elevated cybersecurity vulnerability resulting from the wide-scale remote usage of
our company networks and related risks to the effectiveness of our internal controls over financial reporting.
There is no guarantee that processes we have developed in order to adapt to the COVID-19 pandemic would succeed in
allowing us to adapt to any future pandemic or other public health issue, which may have materially different characteristics
than the COVID-19 pandemic.
To the extent pandemics or other public health issues adversely affect our business, financial position, results of operations,
liquidity and capital resources, and overall business operations, it may also have the effect of heightening many of the other
risks disclosed herein in this Item 1A "Risk Factors".
See "Executive Summary", "Segment Operating Results", and "Liquidity and Capital Resources" included herein in Part 2, Item
7 under "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional discussion.
28
General Risks
We and our insurance subsidiaries are subject to extensive supervision and regulation. Changes in laws and regulations
that affect our industry or findings from examinations and investigations may affect the cost or demand for our products,
increase capital and reserving requirements for our insurance subsidiaries, and adversely affect our profitability, liquidity,
or growth.
Our insurance subsidiaries are subject to extensive supervision and regulation in the United States and abroad. The primary
purpose of insurance regulation is to protect policyholders, not stockholders. To that end, regulatory authorities, including state
insurance departments in the United States, the PRA in the United Kingdom, and the KNF in Poland have broad administrative
powers over many aspects of the insurance business, including requiring various licenses, permits, authorizations, or
accreditations, which our insurance subsidiaries may not be able to obtain or maintain, or may be able to do so only at great
cost. In addition, we and our insurance subsidiaries may not be able to comply fully with, or obtain appropriate exemptions
from, the wide variety of laws and regulations applicable to insurance companies and insurance holding companies. These laws
and regulations can be complex and subject to differing interpretations and are regularly re-examined. Existing or future laws
and regulations, and the manner in which they are interpreted or applied, may become more restrictive or otherwise adversely
affect our operations. For example, they may restrict or prohibit the payment of dividends by our subsidiaries to us, restrict
transactions between subsidiaries and/or between us and our subsidiaries, and may require contributions of capital by us to our
insurance subsidiaries even if we are otherwise in compliance with stated requirements. Failure to comply with or to obtain
appropriate exemptions under any applicable laws or regulations could result in restrictions on the ability of our insurance
subsidiaries to do business in one or more of the jurisdictions in which they operate and could result in fines and other
sanctions, which may have a material adverse effect on our business or results of operations.
Regulatory examinations or investigations could result in, among other things, an increase to reserving requirements, changes in
our claims handling or other business practices, changes in procedures for the identification and payment to the states of
benefits and other property that is not claimed by the owners, changes in the use and oversight of reinsurance, changes in
governance and other oversight procedures, assessments by tax authorities or other governing agencies, fines, and other
administrative action, which could injure our reputation, adversely affect our issuer credit ratings and financial strength ratings,
place us at a competitive disadvantage in marketing or administering our products, impair our ability to sell or retain insurance
policies, and/or have a material adverse effect on our results of operations or financial condition.
It is possible that there will be heightened oversight of insurers by regulatory authorities in the jurisdictions in which our
insurance subsidiaries are domiciled and operate. We cannot predict specific proposals that might be adopted, or what impact,
if any, such proposals or, if enacted, such laws, could have on our business, results of operations, or financial condition. For
instance, the NAIC or state regulators may adopt further revisions to statutory reserving standards or the RBC formula, the PRA
may revise its capital adequacy requirements and minimum solvency margins, the IAIS may adopt capital requirements to
which we could be subject, or rating agencies may incorporate higher capital thresholds into their quantitative analyses, thus
requiring additional capital contributions by us to our insurance subsidiaries. We have received permission to follow
accounting practices that differ from statutory accounting principles prescribed by the NAIC for certain of our insurance
subsidiaries which, if revoked or altered, could have a material adverse effect on our financial condition and possibly trigger a
regulatory event. Increased financial services regulation, which could include activities undertaken by the NAIC and regulatory
authorities in the U.K., Poland, and the EU may impose greater quantitative requirements, supervisory review, and disclosure
requirements and may impact the business strategies, capital requirements, and profitability of our insurance subsidiaries. The
U.K. government is now reviewing the regulatory framework of financial services companies which may result in changes to
U.K. regulatory capital. The United Kingdom's Financial Ombudsman Service, which was established to help settle disputes
between consumers and businesses providing financial services, and the FCA, which has rule-making, investigative, and
enforcement powers to protect consumers, may hamper our ability to do business, which could have a material adverse effect
on our U.K. operations.
Our financial statements are subject to the application of generally accepted accounting principles, in the United States, the
United Kingdom, and Poland, which are periodically revised and/or expanded. Accordingly, we are required to adopt new or
revised accounting standards issued by recognized authoritative bodies within these countries, which may also be influenced by
the International Accounting Standards Board. Future accounting standards we adopt, including the U.S. Financial Accounting
Standards Board's ASU 2018-12 that will be adopted effective January 1, 2023, will change current accounting and disclosure
requirements applicable to our financial statements. Such changes will have a material effect on our reported results of
operations and financial condition and may impact the perception of our business by external stakeholders including the rating
agencies that assign the issuer credit rating on Unum Group.
29
We use an affiliated captive reinsurer for the limited purpose of reinsuring risks attributable to specified policies issued or
reinsured by one of our insurance subsidiaries in order to effectively manage risks in connection with certain blocks of our
business as well as to enhance our capital efficiency. If we were required to discontinue use of the captive reinsurer or to alter
the structure of the captive reinsurance arrangement, our ability to maintain current RBC ratios and/or our capital deployment
activities could be adversely affected.
Changes in U.S. programs such as healthcare reform, the emergence of paid family and medical leave legislation, and financial
services sector reform may compete with or diminish the need or demand for our products, particularly as it may affect our
ability to sell our products through employers or in the workplace. The U.S. social security disability insurance program may
not be sustainable, which may adversely affect the level of our disability claim payments and reserves. Legislative changes
related to pension funding requirements could negatively impact our cash flows from operations and our profitability.
Changes in tax laws and other regulations or interpretations of such laws or regulations could unfavorably impact our corporate
taxes. In addition, changes in tax laws could make some of our products less attractive to consumers.
Changes in privacy and cybersecurity laws and regulations may result in cost increases as a result of system implementations,
administrative processes, effects of potential noncompliance, and limitations or constraints of our business models.
Changes in laws governing oversight and management of climate change risk may subject us to increased costs.
Most group long-term and short-term disability plans we administer are governed by the Employee Retirement Income Security
Act (ERISA). Changes to ERISA enacted by Congress or through judicial interpretations may adversely affect the risk to us of
managing employee benefit plans, increase the premiums associated with such plans, and ultimately affect their affordability
and our profitability.
The insurance departments in jurisdictions wherein our insurance subsidiaries conduct business may limit our ability to obtain
rate increases under guaranteed renewable contracts or could require changes in rates and/or benefits to meet minimum loss
ratio requirements which could negatively impact the profitability of our products. Many regulatory and governmental bodies
have the authority to review our products and business practices and those of our agents and employees. These regulatory or
governmental bodies may bring regulatory or other legal actions against us if, in their view, our practices are improper. These
actions could result in substantial fines or restrictions on our business activities and could have a material adverse effect on our
business or results of operations. Determination by regulatory authorities that we have engaged in improper conduct may also
adversely affect our defense of various lawsuits.
Competition may adversely affect our market share or profitability.
All of our businesses are highly competitive. We believe that the principal competitive factors affecting our business are the
quality of our customer's experience regarding service and claims management, integrated product choices, enrollment
capabilities, price, financial strength ratings, claims-paying ratings, and a solution to allow customers to comply with the
changing laws and regulations related to family medical leave benefits. We compete for new product sales, the retention of
existing business, and the ability to attract and retain independent agents and brokers to market our products, all of which affect
our profitability. All areas of the employee benefits markets are highly competitive due to the yearly renewable term nature of
the group products and the large number of insurance companies offering products in this market. There is a risk that our
customers may be able to obtain more favorable terms or improved technology solutions from competitors in lieu of renewing
coverage with us, particularly if industry pricing levels do not align with our view of adequate premium rates. We are operating
in a dynamic competitive environment of both traditional and non-traditional competitors, with changes in product offerings,
enrollment capabilities, and technology solutions. The level and intensity of competition may also grow due to existing
competitors becoming more aggressive, and an increase in merger and acquisition activity which may result in larger
competitors with greater financial resources. There are many insurance companies which actively compete with us in our lines
of business, and there is no assurance that we will be able to compete effectively against these companies and new competitors
in the future.
30
A decrease in our financial strength or issuer credit ratings may adversely affect our competitive position, our ability to
hedge our risks, and our cost of capital or ability to raise capital, which may adversely affect our results of operations,
financial condition, or liquidity.
We compete based in part on the financial strength ratings provided by rating agencies. Although we maintain an ongoing
dialogue with the rating agencies that assign financial strength ratings to our insurance subsidiaries, the rating agencies may
revise the criteria that are used to evaluate the financial strength of our insurance subsidiaries which could lead to placing our
rating on "credit watch" or "under review" and ultimately lead to a downgrade. A downgrade of our financial strength ratings
may 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, 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 and our ability to raise additional capital. If we are downgraded significantly, ratings triggers in our
derivatives financial instrument contracts may result in our counterparties enforcing their option to terminate the derivative
contracts. Such an event may have a material adverse effect on our financial condition or our ability to hedge our risks.
Events that damage our reputation may adversely affect our business, results of operations, or financial condition.
There are many events which may harm our reputation, including, but not limited to, those discussed in this Item 1A regarding
regulatory investigations, legal proceedings, social issues, and cyber or other information security incidents.
In addition, being in the business of insurance, we are paid to accept certain risks. Those who conduct business on our behalf,
including executive officers and members of management, sales managers, investment professionals, and to some extent,
independent agents and brokers, do so in part by making decisions that involve exposing us to risk. These include decisions
such as maintaining effective underwriting and pricing discipline, maintaining effective claim management and customer
service performance, managing our investment portfolio and derivatives trading activities, delivering effective technology
solutions, complying with established sales practices, executing our capital management strategy, exiting a line of business and/
or pursuing strategic growth initiatives, and other decisions. Although we employ controls and procedures designed to monitor
business decisions and prevent us from taking excessive risks or unintentionally failing to comply with internal policies and
practices such that errors occur, there can be no assurance that these controls and procedures will be effective. If our employees
and business associates take excessive risks and/or fail to comply with internal policies and practices, the impact of those events
may damage our market position and reputation.
Depending on the severity of the damage to our reputation, we may be unable to effectively compete for new products or retain
our existing business, which could adversely affect our results of operations or financial condition. Damage to our reputation
may also hinder our ability to raise new capital and/or increase our cost of capital.
Litigation and contingencies are common in our businesses and may result in financial losses and/or harm to our
reputation.
We are, and in the future may be, defendants in a number of litigation matters, and the outcome of this litigation is uncertain.
Some of these proceedings have been brought on behalf of various alleged classes of complainants. Plaintiffs in class action
and other lawsuits against us may seek very large and/or indeterminate amounts, including punitive and treble damages. An
estimated loss is accrued when it is both probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. An adverse outcome in one or more of these actions may, depending on the nature, scope, and amount of the ruling,
materially and adversely affect our results of operations or financial condition, encourage other litigation, and limit our ability
to write new business, particularly if the adverse outcomes negatively impact certain of our ratings.
As part of our normal operations in managing claims, we are engaged in claim litigation where disputes arise as a result of a
denial or termination of benefits. Typically those lawsuits are filed on behalf of a single claimant or policyholder, and in some
of these individual actions punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims.
For our general claim litigation, we maintain reserves based on experience to satisfy judgments and settlements in the normal
course. We expect that the ultimate liability, if any, with respect to general claim litigation, after consideration of the reserves
maintained, will not be material to our financial condition. Nevertheless, given the inherent unpredictability of litigation, it is
possible that an adverse outcome in certain claim litigation involving punitive damages may, from time to time, have a material
adverse effect on our results of operations. We are unable to estimate a range of reasonably possible punitive losses.
31
Our actions to incorporate environmental, social, and governance standards may not meet expectations of investors,
regulators, customers, employees, and other stakeholders.
Our sustainability strategic framework creates long-term value for stakeholders by implementing business practices that
incorporate environmental, social, and governance (ESG) factors, with a focus on accelerating our efforts around responsible
investments, inclusive products and services, and reducing environmental impact. We include ESG considerations in our
fundamental investment analysis of the companies or projects we invest in to ensure that their values or agendas align with our
own and those of our stakeholders. Investors, regulators, current and prospective customers, employees, and other stakeholders
may evaluate our business according to certain ESG standards and expectations. As our ESG framework matures and we
continue to integrate ESG standards in coordination with other business priorities, our ESG-related efforts may not prove
completely effective or may not satisfy our key stakeholders. Additionally, some of our regulators have proposed new rules,
which would be subject to differing interpretations and would require the development of new processes and controls that may
be complex and result in increases in expenses in order to ensure compliance.
See "Reserves for Policy and Contract Benefits", "Competition", "Regulation" and "Ratings" contained herein in Item 1,
"Executive Summary" and "Critical Accounting Estimates" included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained herein in Item 7, and Notes 1, 6, 7, and 14 of the "Notes to Consolidated
Financial Statements" contained herein in Item 8 for further discussion.
Operational Risks
We may be unable to hire and retain qualified employees which may adversely affect our business, results of operations, or
financial condition.
The talent and contributions of our employees are critical to meeting our business needs. Our future success depends on our
ability to hire and retain qualified personnel. In recent periods we have experienced higher turnover compared to our historical
experience, as many employees seek higher wages, new careers, or choose to exit the workforce entirely. The greater
opportunities for fully remote or hybrid working arrangements have contributed to this trend, as many employees are no longer
limited to employers located in their local area. We have taken steps to address this challenge, including updating
compensation structures, allowing for more hybrid or remote working arrangements, and taking advantage of opportunities to
recruit highly skilled employees from other employers. However, any prolonged stress on our ability to retain or recruit
employees may result in increased labor costs and could adversely affect our ability to conduct and manage our business.
A cyber attack or other security breach could disrupt our operations, result in the unauthorized disclosure or loss of
confidential data, damage our reputation or relationships, and expose us to significant financial and legal liability, which
may adversely affect our business, results of operations, or financial condition.
We store confidential information about our business and our policyholders, employees, agents, and others on our information
technology systems, including proprietary and personally identifiable information. As part of our normal business operations,
we use this information and engage third-party providers, including outsourcing, cloud computing, and other business partners,
that store, access, process, and transmit such information on our behalf. We devote significant resources and employ security
measures to help protect our information technology systems and confidential information, and we have programs in place to
detect, contain, and respond to information security incidents. However, because the techniques used to obtain unauthorized
access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of
time, we and our third-party providers may be unable to anticipate these techniques or implement adequate preventative
measures. In addition, hardware, software, or applications we develop or procure from third parties or through open source
solutions may contain defects in design or manufacture or other problems that could unexpectedly compromise our information
security. Unauthorized parties, whether within or outside our company, may disrupt or gain access to our systems, or those of
third parties with whom we do business, through human error, misfeasance, fraud, trickery, or other forms of deceit, including
break-ins, use of stolen credentials, social engineering, phishing, or other cyber attacks, computer viruses, malicious codes, and
similar means of unauthorized and destructive tampering. Specifically, we have seen an increase in the number and
sophistication of phishing attacks that seek access to our systems through emails sent to our employees. We have taken action
to provide additional training to increase awareness of the potential for these attacks among our workforce.
We and our third-party providers have experienced and likely will continue to experience information security incidents from
time to time. Although known incidents have not had a material effect on our business or financial condition, there is no
assurance that our security systems and measures will be able to prevent, mitigate, or remediate future incidents that could have
such an effect. A successful penetration or circumvention of the security of our information technology systems, or those of
32
third parties with whom we do business, including a ransomware attack that locks or freezes systems until the payment of a
ransom, could cause serious negative consequences for us, including significant disruption of our operations, unauthorized
disclosure or loss of confidential information, harm to our brand or reputation, loss of customers and revenues, violations of
privacy and other laws, and exposure to litigation, monetary damages, regulatory enforcement proceedings, fines, and
potentially criminal proceedings and penalties. If we are unaware of the incident for some time after it occurs, our exposure
could increase. In addition, the costs to address or remediate systems disruptions or security threats or vulnerabilities, whether
before or after an incident, could be significant. As we continue to build our digital capabilities and focus on enhancing the
customer experience, the amount of information that we retain and share with third parties, as well as our reliance on them, is
likely to grow, increasing the cost to prevent data security breaches and the cost and potential consequences of such breaches.
An information technology systems failure could also interfere with our ability to comply with financial reporting and other
regulatory requirements, exposing us to potential disciplinary action by regulators. Further, successful cyber-attacks at other
large financial institutions or other market participants, whether or not we are affected, could lead to a general loss of customer
and investor confidence in financial institutions that could negatively affect us.
Although we have insurance against some cyber risks and attacks, we may be subject to litigation and financial losses that
exceed our policy limits, are subject to deductibles or are not covered under any of our current insurance policies.
The failure of our business recovery and incident management processes to resume our business operations in the event of a
natural catastrophe, cyber attack, or other event could adversely affect our profitability, results of operations, or financial
condition.
In the event of a disaster such as a natural catastrophe, an epidemic/pandemic, a cyber attack, cyber security breach or other
information technology systems failure, a terrorist attack, or war, unanticipated problems with our disaster recovery systems
could have a material adverse impact on our ability to conduct business and on our results of operations and financial condition,
particularly if those problems affect our information technology systems and destroy valuable data or result in a significant
failure of our internal control environment. In addition, in the event that a significant number of our employees were
unavailable in the event of a disaster, our ability to effectively conduct business could be severely compromised.
The failure of our information technology and/or disaster recovery processes or systems for any reason could cause significant
interruptions or malfunctions in our or our customers’ operations and result in the loss, theft, or failure to maintain the security,
confidentiality, or privacy of sensitive data, including personal information relating to our customers. Such a failure could
harm our reputation, subject us to regulatory sanctions, legal claims, and increased expenses, and lead to a loss of customers
and revenues.
Our failure to develop digital capabilities or to effectively execute upgrades to or replacements of information technology
systems could impair our ability to deliver on our growth initiatives or administer our business, which may adversely affect
our business, results of operations, or financial condition.
Our business plans increasingly rely on digital capabilities to meet or surpass customer expectations, simplify our operations,
and deliver innovative product and service offerings. If we are unable to effectively develop and offer digital capabilities that
enhance our customers' experience, we may not fully achieve our strategic growth initiatives and may also experience the loss
of existing business. Although we believe we have information technology systems which adequately support our business
needs, we continually upgrade our existing information technology systems and acquire or develop new systems to keep pace
with the rapidly changing business and technology environment. There are risks involved with upgrading or replacing
information technology systems, including, but not limited to, data loss, data errors, and disruption to our operations. We seek
to monitor and control our exposure to the risks arising out of these activities through our risk control framework which
encompasses a variety of reporting systems, internal controls, management review processes, and other mechanisms.
Unum Group depends on funds from its subsidiaries to meet its obligations and pay dividends. The ability of our
subsidiaries to transfer funds to Unum Group may be impaired by adverse financial results or a change in capital
requirements. Accordingly, internal sources of capital and liquidity may not always be sufficient. If we need to seek
external capital, adverse market conditions may affect our access to capital or our cost of capital.
Unum Group is a holding company for insurance and other subsidiaries and has limited operations of its own. Our insurance
subsidiaries are subject to insurance laws and regulatory limitations on the payment of dividends and on other transfers of funds
or other assets to affiliates, including to Unum Group. The level of earnings and capital in our subsidiaries, as well as business
conditions and rating agency considerations, could impact our insurance and other subsidiaries' ability to pay dividends or to
make other transfers of funds to Unum Group, which could impair our ability to pay dividends to Unum Group's common
33
stockholders, meet our debt and other payment obligations, and/or repurchase shares of Unum Group's common stock. The use
of funds held by Unum Group as consideration in any acquisition could affect our capital plan and render those funds
unavailable for other corporate purposes.
A change 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. Deterioration in the credit market, which could delay our ability to sell
our positions in certain of our fixed maturity securities in a timely manner, could also negatively impact our cash flows.
Regulatory changes such as those discussed herein in this Item 1A may impose higher capital or reserve requirements on our
insurance subsidiaries, increase collateral requirements for certain of our derivatives transactions, and/or implement other
requirements which could unfavorably affect our liquidity. Without sufficient liquidity, our ability to maintain and grow our
operations would be limited. If our internal sources of liquidity prove to be insufficient, we may be unable to successfully
obtain additional financing and capital on favorable terms, or at all, which may adversely affect us.
If our financial results are unfavorable, we may need to increase our capital in order to maintain our credit ratings or satisfy
regulatory requirements. Maintaining appropriate levels of statutory surplus is considered important not only by us but by
insurance regulatory authorities in the U.S., the PRA in the U.K., the KNF in Poland, and the rating agencies that rate insurers'
claims-paying abilities and financial strength. Failure to maintain certain levels of statutory surplus could result in increased
regulatory scrutiny, action by regulatory authorities, or a downgrade by the rating agencies. Need for additional capital may
limit a subsidiary's ability to distribute funds to our holding companies.
Obtaining financing for even a small amount of capital could be challenging in unfavorable market conditions and during
periods of economic uncertainty. The markets may exert downward pressure on availability of liquidity and credit capacity for
certain issuers. The availability of financing will depend on a variety of factors such as market conditions, the general
availability of credit, the overall availability of credit to the financial services industry, our credit ratings and credit capacity,
and the possibility that customers or lenders could develop a negative perception of our financial prospects. Similarly, our
access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. Raising capital in
unfavorable market conditions could increase our interest expense or negatively impact our shareholders through increased
dilution of their common stock in Unum Group.
We maintain our credit facility as a potential source of liquidity. Our right to borrow funds under this facility is subject to
financial covenants, negative covenants, and events of default. Our ability to borrow under this facility is also subject to the
continued willingness and ability of the lenders to provide funds. Our failure to comply with the covenants in the credit facility
or the failure of lenders to fund their lending commitments would restrict our ability to access the facility when needed, with a
resulting adverse effect on our results of operations, financial condition, or liquidity.
The use and reliance on third-party vendors, including vendors providing web and cloud-based applications, may disrupt
our business, and impact our ability to leverage data.
We utilize third-party vendors to provide certain business support services. The reliance on these third-party vendors exposes
us to the risk that we cannot control the information systems, facilities, or networks of such third-party vendors. We employ
substantial third-party risk management measures designed to mitigate this risk, which include, but are not limited to, security
and vulnerability assessments of these third-party vendors as well as robust contractual protections. However, if the
information systems, facilities, or networks of a third-party vendor are disrupted, damaged, or fail, we are at risk of being
unable to meet legal, regulatory, financial or customer obligations. We could also be adversely affected by a third-party vendor
who fails to provide contracted services. In this case, this could lead to lower sales, increased costs, and a disruption to our
business operations or damage our reputation. Lastly, as certain third-party vendors may conduct operations outside of the
U.S., political and military events in foreign jurisdictions could have an adverse effect on our operations.
Our risk management program may leave us exposed to unidentified or unanticipated risk, which could negatively affect our
business.
We have devoted significant resources to develop our enterprise risk management program, which has the objective of
managing our strategic, market, credit, public health, insurance, and operations risks, which ultimately impact our reputational
risk. However, our program may not be comprehensive, and our methods for monitoring and managing risk may not fully
predict or mitigate future exposures. In this case, there may be a negative impact to our business, results of operations, or
financial condition.
34
See "Regulation" contained herein in Item 1,"Critical Accounting Estimates" and "Liquidity and Capital Resources" included in
"Management's Discussion and Analysis of Financial Condition and Results of Operations" contained herein in Item 7,
"Quantitative and Qualitative Disclosures About Market Risk" contained herein in Item 7A, and Notes 8, 14, and 16 of the
"Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
As of December 31, 2022, we owned office space comprised of five campuses located in Chattanooga, Tennessee; Portland,
Maine; Columbia, South Carolina; Baton Rouge, Louisiana; and Dorking in the United Kingdom. In addition, as of
December 31, 2022, we leased office space in various locations throughout the United States, the United Kingdom, Ireland, and
Poland. Substantially all of the properties owned or leased are used by one or more of our five reporting segments, depending
on the location. We believe our properties and facilities are suitable and adequate for current operations.
ITEM 3. LEGAL PROCEEDINGS
Refer to Note 14 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for information on legal
proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
35
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Common stock of Unum Group is traded on the New York Stock Exchange. The stock symbol is UNM. Quarterly dividends
declared and paid per share of common stock are as follows:
2022
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
2021
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
$
$
0.330
0.330
0.300
0.300
0.300
0.300
0.285
0.285
Our board of directors has the authority to declare cash dividends on shares of our common stock. In determining dividends, the
board takes into account a number of factors including our financial condition and results of operations, regulatory limitations on
the payment of dividends from subsidiaries, cash requirements, general economic conditions, and other factors the board may
deem relevant. For information on restrictions relating to our subsidiaries' ability to pay dividends to Unum Group and certain of
its intermediate holding company subsidiaries, see "Liquidity and Capital Resources - Cash Available from Subsidiaries"
contained herein in Item 7 and Note 16 of the "Notes to Consolidated Financial Statements" contained herein in Item 8. For
information relating to compensation plans under which Unum Group's equity securities are authorized for issuance, see Item 12
contained herein.
As of February 21, 2023, there were 7,840 registered holders of common stock.
The following table provides information about our share repurchase activity for the fourth quarter of 2022.
(a) Total
Number of
Shares
Purchased
(b) Average
Price Paid per
Share (1)
(c) Total Number of
Shares Purchased as Part
of Publicly Announced
Program (2)
(d) Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Program (2)
October 1 - October 31, 2022
November 1 - November 30, 2022
December 1 - December 31, 2022
Total
302,916 $
605,225
579,731
1,487,872
43.98
42.42
40.49
302,916 $
605,225
579,731
1,487,872
49,147,153
23,474,196
—
(1) The average price paid per share excludes the cost of commissions.
(2) In October 2021, our board of directors authorized the repurchase of up to $250.0 million of Unum Group's outstanding
common stock. The October 2021 share repurchase program expired on December 31, 2022. In December 2022, our board of
directors authorized the repurchase of up to $200.0 million of Unum Group's outstanding common stock beginning on January 1,
2023. In February 2023, our board of directors authorized an increase to the share repurchase program such that we are now
authorized to repurchase up to $250.0 million of Unum Group's outstanding common stock. This share repurchase program has
an expiration date of December 31, 2023.
ITEM 6. [RESERVED]
36
ITEM 7. 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 the "Cautionary Statement Regarding
Forward-Looking Statements" included below the Table of Contents, "Risk Factors" included herein Item 1A, and the
Consolidated Financial Statements and notes thereto included in Item 8.
Executive Summary
2022 Operating Performance and Capital Management
For 2022, we reported net income of $1,314.2 million, or $6.50 per diluted common share, compared to net income of $824.2
million, or $4.02 per diluted common share, in 2021.
Included in our results for 2022 are:
•
•
•
A net investment loss of $15.7 million before tax and $12.2 million after tax, or $0.07 per diluted common share;
Amortization of the cost of reinsurance of $63.8 million before tax and $50.4 million after tax, or $0.25 per diluted
common share;
A reserve decrease related to assumption updates of $155.0 million before tax and $122.5 million after tax, or $0.61 per
diluted common share;
Included in our results for 2021 are:
•
•
•
•
•
•
•
•
A net investment gain, excluding the net realized investment gain related to the second phase of the Closed Block
individual disability reinsurance transaction, of $9.1 million before tax and $7.2 million after tax, or $0.03 per diluted
common share;
The impact from the second phase of the Closed Block individual disability reinsurance transaction, which resulted in a
net loss of $71.7 million before tax and $56.7 million after tax, or $0.27 per diluted common share;
Amortization of the cost of reinsurance of $79.1 million before tax and $62.3 million after tax, or $0.31 per diluted
common share;
A net reserve decrease related to assumption updates of $181.4 million before tax and $143.3 million after tax, or $0.70
per diluted common share;
An impairment loss on internal-use software of $12.1 million before tax and $9.6 million after tax, or $0.05 per diluted
common share;
Cost related to the early retirement of debt of $67.3 million before tax and $53.2 million after tax, or $0.26 per diluted
common share;
An impairment loss on the right-of-use (ROU) asset related to one of our operating leases of $13.9 million before tax
and $11.0 million after tax, or $0.05 per diluted common share;
Tax expense related to a U.K. tax rate increase of $24.2 million or $0.12 per diluted common share.
Excluding these items, after-tax adjusted operating income for 2022 was $1,254.3 million, or $6.21 per diluted common share
compared to $890.7 million, or $4.35 per diluted common share for 2021. See "Reconciliation of Non-GAAP and Other
Financial Measures" contained herein in this Item 7 for a reconciliation of these items.
Our Unum US segment reported an increase in income before income tax and net investment gains and losses of 65.6 percent in
2022 compared to 2021, which includes the reserve decreases related to the assumption updates during the third quarter of 2022
and 2021. Excluding these items, our Unum US segment reported an increase in adjusted operating income of 108.8 percent in
2022 compared to 2021, due to favorable benefits experience, particularly in our group product lines, and an increase in premium
income, partially offset by higher operating expenses and lower net investment income. The benefit ratio, excluding the
previously discussed reserve decreases, for our Unum US segment for 2022 was 65.5 percent, compared to 74.9 percent in 2021.
Unum US sales increased 18.4 percent in 2022 compared to 2021. See "Reserve Assumption Updates" contained herein for
further discussion.
Our Unum International segment reported an increase in adjusted operating income, as measured in U.S. dollars, of 20.2 percent
in 2022 compared to 2021. As measured in local currency, our Unum UK line of business reported an increase in adjusted
operating income of 37.7 percent compared to 2021 due to higher premium income and higher net investment income, partially
offset by higher operating expenses and unfavorable benefits experience. The benefit ratio for our Unum UK line of business
37
was 81.1 percent in 2022 compared to 79.6 percent in 2021. Unum International sales, as measured in U.S. dollars, increased
26.4 percent in 2022 compared to 2021. Unum UK sales, as measured in local currency, increased 43.5 percent in 2022
compared to 2021.
Our Colonial Life segment reported an increase in adjusted operating income of 13.8 percent in 2022 compared to 2021 due
primarily to favorable benefits experience, partially offset by higher operating expenses and lower net investment income. The
2022 benefit ratio for Colonial Life was 47.2 percent, compared to 53.9 percent in 2021. Colonial Life sales increased 5.9
percent in 2022 compared to 2021.
Our Closed Block segment reported an increase in income before income tax and net investment gains and losses of 29.0 percent
in 2022, which includes the amortization of the cost of reinsurance, compared to 2021, which includes reserve increases related
to the assumption updates, the impact related to the second phase of the Closed Block individual disability reinsurance
transaction, and the amortization of the cost of reinsurance. Excluding these items, our Closed Block segment reported a
decrease in adjusted operating income of 37.2 percent in 2022 compared to 2021. The long-term care interest adjusted loss ratio
for 2022 was less favorable compared to 2021, which excludes the reserve increase related to the assumption update in the third
quarter of 2021. See "Reserve Assumption Updates" and "Closed Block Individual Disability Reinsurance Transaction"
contained herein for further discussion.
A rising interest rate environment could continue to positively impact our yields on new investments, but could also continue to
create unrealized losses in our current holdings. Our net investment income has been pressured as the majority of our
investments were made at a decreasing level of interest rates indicative of the prevailing trend over the last decades. As of
December 31, 2022, we do not hold any securities with a decline in fair value below amortized cost which we intend to sell and
it is not more likely than not that we will be required to sell before recovery in amortized cost. The net unrealized loss on our
fixed maturity securities was $3.0 billion at December 31, 2022, compared to a $5.9 billion net unrealized gain at December 31,
2021, with the decrease due primarily to an increase in U.S. Treasury rates and credit spreads. The earned book yield on our
investment portfolio decreased to 4.57 percent for 2022 compared to a yield of 4.85 percent for 2021.
We believe our capital and financial positions are strong. At December 31, 2022, the RBC ratio for our traditional U.S.
insurance subsidiaries, calculated on a weighted average basis using the NAIC Company Action Level formula, was
approximately 420 percent, which is in line with our expectations. We repurchased 5.7 million shares of Unum Group common
stock under our share repurchase program, at a cost of approximately $200 million during 2022. Our weighted average common
shares outstanding, assuming dilution, equaled 202.1 million for 2022 compared to 204.8 million for 2021. As of December 31,
2022, Unum Group and our intermediate holding companies had available holding company liquidity of $1,571 million that was
held primarily in bank deposits, commercial paper, money market funds, corporate bonds, municipal bonds, and asset-backed
securities.
Coronavirus Disease 2019 (COVID-19)
COVID-19 continues to cause disruption to the global economy and has unfavorably impacted our company as well as the
overall insurance industry. During 2022, we experienced lower mortality in our life products lines, resulting primarily from
lessening impacts of COVID-19 on our insured population compared to 2021. Due to the volatile and unprecedented nature of
these events, we still cannot fully estimate the ultimate impact of the COVID-19 pandemic. We continue to closely monitor
pandemic trends that have and may continue to have adverse impacts on our business.
38
Inflation Reduction Act
In August 2022, the Inflation Reduction Act (IRA) was signed into law in the U.S. and includes certain corporate tax provisions
effective January 1, 2023. It imposes a new 15 percent corporate alternative minimum tax (CAMT) on adjusted financial
statement income (AFSI) on corporations that have average AFSI over $1.0 billion in any prior three-year period, starting with
years 2020 to 2022. We anticipate that our company will be an applicable corporation as early as 2023. We do not expect that
any CAMT incurred would impact earnings since it would be offset with a credit toward regular income tax in subsequent years.
We continue to monitor the ongoing guidance issued by the United States Treasury. The IRA also imposes a one percent excise
tax on the fair market value of corporate stock repurchases after December 31, 2022. This excise tax would be recorded as part
of the cost basis of treasury stock. We have not recorded any tax impact from the enactment of the IRA as of December 31,
2022.
Reserve Assumption Updates
During the third quarter of 2022, we completed our annual review of policy and claim reserve adequacy, which incorporated our
most recent experience and included a review of all material assumptions. Based on our analysis, during the third quarter of
2022, we updated our reserve assumptions to reflect our current estimate of future benefit obligations and determined that our
claim reserves in our Unum US group long-term disability product line and our waiver of premium reserves for our Unum US
group life product line should be reduced by $121.0 million and $34.0 million before tax, or $95.6 million and $26.9 million
after tax, respectively, due primarily to sustained improvement in claim recovery trends since our last assumption update,
partially offset by lower social security benefit offsets for our group long-term disability product line.
During the third quarter of 2022, we increased our claim reserves for the reinsured portion of our Closed Block individual
disability product line by $193.9 million before tax, or $153.2 million after tax, resulting primarily from updates to mortality
assumptions for the advanced age portion of our claimant population. This increase is entirely related to the block that was
ceded as a part of the Closed Block individual disability reinsurance transaction with Commonwealth Annuity and Life
Insurance Company (Commonwealth) and as a result, a corresponding increase was reported in our consolidated balance sheet as
a reinsurance recoverable. There was no net impact on our consolidated results of operations for the period. The amortization of
the cost of reinsurance related to the Closed Block individual disability reinsurance transaction is based upon expected claim
reserve patterns and as such there was a resulting change in the timing of the amortization of the cost of reinsurance.
During the third quarter of 2021, we completed our annual review of policy and claim reserve adequacy, which incorporated our
most recent experience and included a review of all material assumptions. Based on our analysis, during the third quarter of
2021, we updated our reserve assumptions to reflect our current estimate of future benefit obligations and determined that our
claim reserves should be reduced by $215.0 million before tax, or $169.9 million after tax, in our Unum US group long-term
disability product line due primarily to sustained improvement in claim recovery trends since our last assumption update. We
also increased our claim reserves for our Closed Block long-term care and individual disability product lines by $2.1 million and
$6.4 million before tax, or $1.7 million and $5.1 million after tax, respectively. We determined that our policy reserves should
be increased by $25.1 million before tax, or $19.8 million after tax, in our Closed Block group pension product line to reflect
updated discount rate assumptions.
During the fourth quarter of 2020, we completed our annual review of policy and claim reserve adequacy, which incorporated
our most recent experience and included a review of all material assumptions. Based on our analysis, during the fourth quarter
of 2020, we updated our reserve assumptions to reflect our current estimate of future benefit obligations and determined that our
gross policy and claim reserves should be increased by $151.5 million before tax, or $119.7 million after tax, for our Closed
Block long-term care product line due primarily to an update to our interest rate assumptions, partially offset by favorable
premium rate increase approvals and inventory updates. Also during the fourth quarter of 2020, we updated our reserve
assumptions and determined that our policy and claim reserves should be increased by $17.5 million before tax, or $13.8 million
after tax, in our Closed Block group pension product line to reflect updated discount rate assumptions.
For further information related to the reserve assumption updates, see "Trends in Key Assumptions" contained herein in the
"Critical Accounting Estimates" of this Item 7 and Note 6 of the "Notes to Consolidated Financial Statements" contained in Item
8.
Impairment Loss on Internal-Use Software
During the third quarter of 2021, we recognized an impairment loss of $12.1 million before tax, or $9.6 million after tax, for
previously capitalized internal-use software that we no longer plan to utilize. We determined that this internal-use software
39
would no longer be developed in order to focus our efforts on the development of software that better supports our long-term
strategic goals. For further information related to the impairment loss on internal-use software, see Note 13 of the "Notes to
Consolidated Financial Statements" contained in Item 8.
Impairment Losses on ROU Asset
During the second quarters of 2021 and 2020, we recognized impairment losses of $13.9 million and $12.7 million before tax, or
$11.0 million and $10.0 million after tax, on the ROU asset related to one of our operating leases for office space that we do not
plan to continue using to support our general operations. The impairment loss was recorded as a result of a decrease in the fair
value of the ROU asset compared to its carrying value. For further information related to the impairment losses on the ROU
asset, see Note 15 of the "Notes to Consolidated Financial Statements" contained in Item 8.
U.K. Tax Law Change
In June 2021, the Finance Act 2021 was enacted, resulting in a U.K. tax rate increase from 19 percent to 25 percent, effective
April 1, 2023, which resulted in $24.2 million of additional tax expense in operating earnings for the revaluation of our deferred
tax assets and liabilities in 2021. The U.K. tax rate increase may cause volatility in our effective tax rate prior to the April 1,
2023 effective date as a result of changes in the deferred tax balance related to our Unum UK business. In July 2020, the
Finance Act 2020 was enacted, resulting in a U.K. tax rate increase from 17 percent to 19 percent, retroactively effective April 1,
2020, which resulted in $9.3 million of additional tax expense in operating earnings for the revaluation of our deferred tax assets
and liabilities in 2020.
Costs Related to Organizational Design Update
During the third quarter of 2020, we realigned certain parts of our organizational structure by shifting resources to accelerate
growth, fund priority investments, and simplify and improve our business practices. In connection with this update, we incurred
charges of $23.3 million before tax, or $18.6 million after tax, which primarily consisted of employee severance and benefit
costs as well as costs related to lease terminations and the disposal of certain fixed assets. This update did not result in the exit
or disposal of any of our lines of business.
Closed Block Individual Disability Reinsurance Transaction
In December 2020, we completed the first phase of a reinsurance transaction, pursuant to which Provident Life and Accident
Insurance Company, The Paul Revere Life Insurance Company, and Unum Life Insurance Company of America, wholly-owned
domestic insurance subsidiaries of Unum Group, and collectively referred to as "the ceding companies", each entered into
separate reinsurance agreements with Commonwealth, to reinsure on a coinsurance basis effective as of July 1, 2020,
approximately 75 percent of the Closed Block individual disability business, primarily direct business written by the ceding
companies. In March 2021, we completed the second phase of the reinsurance transaction, pursuant to which the ceding
companies and Commonwealth amended and restated their respective reinsurance agreements to reinsure on a coinsurance and
modified coinsurance basis effective as of January 1, 2021, a substantial portion of the remaining Closed Block individual
disability business that was not ceded in December 2020, primarily business previously assumed by the ceding companies.
Commonwealth established and will maintain collateralized trust accounts for the benefit of the ceding companies to secure its
obligations under the reinsurance agreements.
In December 2020, Provident Life and Casualty Insurance Company (PLC), also a wholly-owned domestic insurance subsidiary
of Unum Group, entered into an agreement with Commonwealth whereby PLC will provide a 12-year volatility cover to
Commonwealth for the active life cohort (ALR cohort). As part of this agreement, PLC received a payment from
Commonwealth of $62.1 million. On March 31, 2021, PLC and Commonwealth amended and restated this agreement to
incorporate the ALR cohort related to the additional business that was reinsured between the ceding companies and
Commonwealth as part of the second phase of the transaction. As part of the amended and restated volatility cover, PLC
received a payment from Commonwealth of $17.9 million. At the end of the 12-year coverage period, Commonwealth will
retain the remaining incidence and claims risk on the ALR cohort of the ceded business.
In connection with the first phase of the reinsurance transaction which occurred in December 2020, the ceding companies paid a
total ceding commission to Commonwealth of $437.7 million. In connection with the second phase of the reinsurance
transaction which occurred in March 2021, Commonwealth paid a ceding commission to the ceding companies of $18.2 million.
The ceding companies transferred assets, which consisted primarily of cash and fixed maturity securities, of $6,669.8 million and
$767.0 million, for the first phase in December 2020 and the second phase in March 2021, respectively. In addition, we
40
recognized the following items for the first phase in December 2020 and the second phase in March 2021, respectively:
•
•
•
•
•
•
•
•
Net realized investment gains totaling $1,302.3 million and $67.6 million before tax, or $1,028.8 million and $53.4
million after tax, related to the transfer of investments.
Increase in benefits and change in reserves for future benefits of $1,284.5 million and $133.1 million, or $1,014.7
million and $105.1 million after tax, resulting from the realization of previously unrealized investment gains and losses
recorded in accumulated other comprehensive income (loss).
Transaction costs totaling $21.0 million and $6.2 million, or $16.6 million and $5.0 million after tax.
Reinsurance recoverable of $6,141.5 million and $990.0 million related to the policies on claim status (DLR cohort).
Cost of reinsurance, or prepaid reinsurance premium, of $815.7 million and $43.1 million related to the DLR cohort for
which we amortized $63.8 million before tax or $50.4 million after tax in 2022, $79.1 million before tax or $62.3
million after tax in 2021, and $2.6 million before tax or $2.0 million after tax in 2020.
Deposit asset of $88.2 million and $5.0 million related to the ALR cohort.
Tax benefit of $36.5 million, in connection with the first phase.
Payable of $307.2 million related to the portfolio of invested assets associated with the business ceded on a modified
coinsurance basis, in connection with the second phase.
We released approximately $200 million of capital during the first quarter of 2021 in addition to the $400 million that was
released in December 2020. See "Reinsurance" contained herein in Item 1; "Segment Results," and "Liquidity and Capital
Resources - Cash Available from Subsidiaries" contained herein in Item 7, and Notes 12 and 16 of the "Notes to Consolidated
Financial Statements" contained herein in Item 8 for further discussion on the impacts related to this reinsurance transaction.
Consolidated Company Outlook for 2023
We believe our strategy of providing financial protection products at the workplace puts us in a position of strength. We
continue to fulfill our corporate purpose of helping the working world thrive throughout life’s moments by providing excellent
service to people at their time of need. Our strategy remains centered on growing our core businesses, through investing and
transforming our operations and technology to anticipate and respond to the changing needs of our customers, expanding into
new adjacent markets through meaningful partnerships and effective deployment of our capital across our portfolio.
As the pandemic impacts have lessened, we have experienced recovery in our earnings driven by the underlying strength of our
business and expect positive operating trends in our core businesses to continue in 2023, including improved claim experience.
The products and services we provide delivered significant value to employers, employees and their families, throughout the
COVID-19 pandemic and we believe this will help drive sales and premium growth in 2023.
The current interest rate environment could continue to positively impact our yields on new investments, but could also continue
to create unrealized losses in our current holdings. We also may continue to experience further volatility in miscellaneous
investment income primarily related to changes in partnership net asset values as well as bond calls.
As part of our discipline in pricing and reserving, we continuously monitor emerging claim trends and interest rates. We will
continue to take appropriate pricing actions on new business and renewals that are reflective of the current environment and may
continue to utilize derivative financial instruments to manage interest rate risk.
Our business is well-diversified by geography within our markets, industry exposures and case size, and we continue to analyze
and employ strategies that we believe will help us navigate the current environment. These strategies allow us to maintain
financial flexibility to support the needs of our businesses, while also returning capital to our shareholders. We have strong core
businesses that have a track record of generating significant free cash flow, and we will continue to invest in our operations and
expand into adjacent markets where we can best leverage our expertise and capabilities to capture market growth opportunities
as those opportunities emerge. We believe that consistent operating results, combined with the implementation of strategic
initiatives and the effective deployment of capital, will allow us to meet our financial objectives.
Effective January 1, 2023, we will adopt Accounting Standard Update 2018-12, Targeted Improvements to the Accounting for
Long-Duration Contracts (ASU 2018-12).
41
Further discussion is included in "Reconciliation of Non-GAAP and Other Financial Measures," "Accounting Developments",
"Consolidated Operating Results," "Segment Results," "Investments," and "Liquidity and Capital Resources" contained herein in
this Item 7 and in the "Notes to Consolidated Financial Statements" contained herein in Item 8.
Reconciliation of Non-GAAP and Other Financial Measures
We analyze our performance using 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 U.S generally accepted
accounting principles (GAAP). The non-GAAP financial measure of "after-tax adjusted operating income" differs from net
income as presented in our consolidated operating results and income statements prepared in accordance with GAAP due to the
exclusion of investment gains or losses and the amortization of the cost of reinsurance as well as certain other items as specified
in the reconciliations below. Investment gains or losses primarily include realized investment gains or losses, expected
investment credit losses, and gains or losses on derivatives. We believe after-tax adjusted operating income is a better
performance measure and better indicator of the profitability and underlying trends in our business.
Investment gains or losses depend on market conditions and do not necessarily relate to decisions regarding the underlying
business of our segments. Our investment focus is on investment income to support our insurance liabilities as opposed to the
generation of investment gains or losses. Although we may experience investment gains or losses which will affect future
earnings levels, a long-term focus is necessary to maintain profitability over the life of the business since our underlying business
is long-term in nature, and we need to earn the interest rates assumed in calculating our liabilities.
As previously discussed, we have exited a substantial portion of our Closed Block individual disability product line through the
two phases of the reinsurance transaction that were executed in December 2020 and March 2021. As a result, we exclude the
amortization of the cost of reinsurance that was recognized upon the exit of the business related to the DLR cohort of policies.
We believe that the exclusion of the amortization of the cost of reinsurance provides a better view of our results from our
ongoing businesses.
We may at other times exclude certain other items from our discussion of financial ratios and metrics in order to enhance the
understanding and comparability of our operational performance and the underlying fundamentals, but this exclusion is not an
indication that similar items may not recur and does not replace net income or net loss as a measure of our overall profitability.
See "Executive Summary" contained herein in Item 7 and Notes 3, 6, 7, 8, 12, 13, and 15 of the "Notes to Consolidated Financial
Statements" contained herein in Item 8 for further discussion regarding the items specified in the reconciliations below.
42
A reconciliation of GAAP financial measures to our non-GAAP financial measures is as follows:
2022
Year Ended December 31
2021
2020
Net Income
Excluding:
Net Investment Gains and Losses
Net Realized Investment Gain
Related to Reinsurance Transaction
(net of tax expense of $—; $14.2;
$273.5)
Net Investment Gain (Loss), Other
(net of tax expense (benefit) of
$(3.5); $1.9; $(20.9))
Total Net Investment Gain (Loss)
Items Related to Closed Block
Individual Disability Reinsurance
Transaction
Change in Benefit Reserves and
Transaction Costs (net of tax
benefit of $—; $29.2; $274.2)
Amortization of the Cost of
Reinsurance (net of tax benefit of
$13.4; $16.8; $0.6)
Net Tax Benefits of Reinsurance
Transaction
Total Items Related to Closed
Block Individual Disability
Reinsurance Transaction
Net Reserve Change Related to
Reserve Assumption Updates (net of
tax expense (benefit) of $32.5; $38.1;
$(35.5))
Impairment Loss on Internal-Use
Software (net of tax benefit of $—;
$2.5; $—)
Cost Related to Early Retirement of
Debt (net of tax benefit of $—;
$14.1; $—)
Impairment Loss on ROU Asset (net
of tax benefit of $—; $2.9; $2.7)
Impact of U.K. Tax Rate Increase
Costs Related to Organizational
Design Update (net of tax benefit of
$—; $—; $4.7)
After-tax Adjusted Operating
Income
* Assuming Dilution
(in millions)
$
1,314.2 $
per share *
(in millions)
per share *
(in millions)
6.50 $
824.2 $
4.02 $
793.0 $
per share *
3.89
—
—
53.4
0.26
1,028.8
5.05
(12.2)
(12.2)
(0.07)
(0.07)
7.2
60.6
0.03
0.29
(82.3)
946.5
(0.40)
4.65
—
—
(110.1)
(0.53)
(1,031.3)
(5.06)
(50.4)
(0.25)
(62.3)
(0.31)
(2.0)
(0.01)
—
—
—
—
36.5
0.18
(50.4)
(0.25)
(172.4)
(0.84)
(996.8)
(4.89)
122.5
0.61
143.3
0.70
(133.5)
(0.66)
—
—
—
—
—
—
—
—
—
—
(9.6)
(0.05)
(53.2)
(0.26)
—
—
—
—
(11.0)
(24.2)
(0.05)
(0.12)
(10.0)
—
(0.05)
—
—
—
(18.6)
(0.09)
$
1,254.3 $
6.21 $
890.7 $
4.35 $
1,005.4 $
4.93
We measure and analyze our segment performance on the basis of "adjusted operating revenue" and "adjusted operating income"
or "adjusted operating loss", which differ from total revenue and income before income tax as presented in our consolidated
statements of income due to the exclusion of investment gains and losses and the amortization of the cost of reinsurance as well
as other items as specified in the reconciliations below. These performance measures are in accordance with GAAP guidance for
segment reporting, but they should not be viewed as a substitute for total revenue, income before income tax, or net income.
43
A reconciliation of total revenue to "adjusted operating revenue" and income before income tax to "adjusted operating income" is
as follows:
2022
Year Ended December 31
2021
(in millions of dollars)
12,013.8 $
11,991.0 $
2020
13,162.1
(15.7)
12,006.7 $
76.7
11,937.1 $
1,199.1
11,963.0
1,631.4 $
1,063.0 $
964.0
—
(15.7)
(15.7)
67.6
9.1
76.7
1,302.3
(103.2)
1,199.1
—
(63.8)
(139.3)
(79.1)
(1,305.5)
(2.6)
(63.8)
155.0
—
—
—
—
1,555.9 $
(218.4)
181.4
(12.1)
(67.3)
(13.9)
—
1,116.6 $
(1,308.1)
(169.0)
—
—
(12.7)
(23.3)
1,278.0
Total Revenue
Excluding:
Net Investment Gain (Loss)
Adjusted Operating Revenue
Income Before Income Tax
Excluding:
Net Investment Gains and Losses
Net Realized Investment Gain Related to Reinsurance Transaction
Net Investment Gain (Loss), Other
Total Net Investment Gain (Loss)
Items Related to Closed Block Individual Disability Reinsurance
Transaction
Change in Benefit Reserves and Transaction Costs
Amortization of the Cost of Reinsurance
Total Items Related to Closed Block Individual Disability Reinsurance
Transaction
Net Reserve Change Related to Reserve Assumption Updates
Impairment Loss on Internal-Use Software
Cost Related to Early Retirement of Debt
Impairment Loss on ROU Asset
Costs Related to Organizational Design Update
Adjusted Operating Income
$
$
$
$
44
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. 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. The accounting estimates deemed to be most critical to our financial
position and results of operations are those related to reserves for policy and contract benefits, deferred acquisition costs,
valuation of investments, pension and postretirement benefit plans, income taxes, and contingent liabilities. For additional
information, refer to our significant accounting policies in Note 1 of the "Notes to Consolidated Financial Statements" contained
herein in Item 8.
Reserves for Policy and Contract Benefits
Reserves for policy and contract benefits are our largest liabilities and represent 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. Reserves for policy and
contract benefits equaled $44.7 billion and $45.3 billion at December 31, 2022 and 2021, or approximately 85.6 percent and 77.1
percent of our total liabilities, respectively. Reserves ceded to reinsurers were $13.0 billion and $13.5 billion at December 31,
2022 and 2021 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 non-interest
sensitive products, including our individual disability and voluntary benefits products in our Unum US segment; individual
disability and life products in our Unum International segment; voluntary benefits products in our Colonial Life segment; and
long-term care and other products, which includes individual disability, in our Closed Block segment. 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 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.
Because the key policy reserve assumptions for policy persistency, mortality and morbidity, and discount rates are all locked in
at policy issuance based on assumptions appropriate at that time, policy reserve assumptions are generally not changed due to a
change in claim status from active to disabled subsequent to policy issuance. Depending on the funding mechanism, a full policy
reserve is held during disability reflecting continued funding of the full policy reserve during a disability claim, or a fractional
policy reserve is held reflecting that the individual policyholder would need to recover before generating future claims for a
separate occurrence. The policy reserves build up and release over time based on assumptions made at the time of policy
issuance such that the reserve is eliminated as policyholders either reach the terminal age for coverage, die, or voluntarily lapse
the policy. Policy reserves for Unum US, Unum International, and Colonial Life products are determined using the net level
45
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 and claim expenses we will pay and the expected future premiums
we will receive, with a provision for profit allowed.
Policy reserves for our Closed Block segment include certain older policy forms for individual and group long-term care and
certain other products, all of which are no longer actively marketed. The reserves for individual and group long-term care are
determined using the gross premium valuation method. Key assumptions are persistency, mortality and morbidity, claim
incidence, claim resolution rates, commission rates, and maintenance expense rates. For long-term care, premium rate increases
are also a key assumption. We 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, with no provision for future
profit. The interest rate is based on our expected net investment returns on the investment portfolio supporting the reserves for
these blocks of business. 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 in the future.
Policy reserves for certain other products, excluding individual and group long-term care, which are no longer actively marketed
and are reported in our Closed Block segment represent $5.6 billion on a gross basis. We have ceded $4.7 billion of reserves
related to these other products 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, the age, and, as appropriate, the occupation and cause of
disability 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, discount rate, and policy benefit offsets, including those for social security and
other government-based welfare benefits. 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, these reserves are
also established 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.
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 loss
development method, the incurred loss development method, the count and severity method, and the expected claim cost method.
No single 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.
We use a tabular reserve methodology on reported claims for our Unum US group long-term disability and individual disability
claims as well as claims for our Closed Block group and individual long-term care and certain other products. The majority of
our claim reserves for our Closed Block other products have been ceded as a result of the Closed Block individual disability
reinsurance transaction. 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, as well as assumptions regarding
claim duration, discount rate, and policy benefit offsets. We believe the tabular reserve method is the most accurate to calculate
long-term liabilities and allows 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 Unum US group short-term disability products, an estimate of the value of future payments to be
46
made on claims already submitted, as well as on IBNR claims, is determined in aggregate using a paid loss development method
rather than on the individual claimant basis that we use for reported claims on long-term products. 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 for Unum US group life and accidental death and dismemberment 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 paid loss development method, and the waiver of
premium benefits reserve is calculated using the tabular reserve methodology.
Claim reserves supporting the group and individual dental and vision products reported in our Unum US and Colonial Life
segments have a short claim payout period. As a result, the reserves, which primarily represent IBNR and a small amount of
claims pending payment, are calculated using the paid loss development method.
Claim reserves supporting our Unum International segment are calculated using generally the same methodology that we use for
Unum US disability and group term life reserves. Claim reserves for our Unum UK group dependent life product are calculated
using discounted cash flows, based on our assumptions for claim duration and discount rates. The assumptions used in
calculating claim reserves for this segment are based on standard country-specific industry experience, adjusted for our own
experience.
The majority of the Colonial Life segment and the Unum US voluntary line of business have short-term benefits, which
generally have less estimation variability than our long-term products because of the shorter claim payout period. Claim
reserving methods may vary by product depending on the nature of the liability. Our claim reserves for the Colonial Life
segment and the Unum US voluntary line of business 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 segment and the Unum US voluntary line of business are the timing, rate, and amount of
estimated future claim payments; and 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 the expected benefits payable under each incurred claim, along with other expenses associated
with the payment of the claims. IBNR claim reserves include provisions for incurred but not reported claims and a provision for
reopened claims for our disability products. The IBNR and reopened claim reserves for our disability products are developed
and maintained in aggregate based on historical monitoring. Impacting year over year comparability of policy and claim
reserves in the following chart are the 2022 reserve assumption updates for our Unum US group disability, Unum US group life,
and Closed Block individual disability product lines. Also impacting year over year comparability are the 2021 reserve
assumption updates for our Unum US group disability, Closed Block long-term care, and Closed Block individual disability
product lines as well as the second phase of the Closed Block individual disability reinsurance transaction that we entered into in
March 2021. See "Executive Summary" contained herein in this Item 7 and Notes 6 and 12 of the "Notes to Consolidated
Financial Statements" contained herein in Item 8 for further discussion.
47
(in millions of dollars)
December 31, 2022
Gross
Claim Reserves
Policy
Reserves
%
Incurred
IBNR
%
Total
Total
Reinsurance
Ceded
Total Net
Group Disability
$
—
— % $ 5,003.0 $
747.6
25.2 % $ 5,750.6 $
46.4 $ 5,704.2
Group Life and Accidental Death &
Dismemberment
Voluntary Benefits
Individual Disability
Dental and Vision
Unum US Segment
54.5
1,791.0
435.0
—
0.2
8.2
2.0
—
678.1
44.8
1,427.8
0.2
260.0
50.3
154.1
10.7
4.1
0.4
6.9
0.1
992.6
1,886.1
2,016.9
10.9
7.5
13.2
985.1
1,872.9
208.8
1,808.1
0.1
10.8
2,280.5
10.4
7,153.9
1,222.7
36.7
10,657.1
276.0
10,381.1
Unum International Segment
206.1
0.9
1,925.4
164.8
9.2
2,296.3
74.2
2,222.1
Colonial Life Segment
2,575.9
11.8
276.5
106.5
1.7
2,958.9
1.3
2,957.6
Long-term Care
All Other
Closed Block Segment
11,220.7
5,620.7
16,841.4
51.2
25.7
76.9
2,477.5
9,021.5
11,499.0
283.0
201.0
484.0
12.1
40.3
52.4
13,981.2
5.7
13,975.5
14,843.2
12,602.8
2,240.4
28,824.4
12,608.5
16,215.9
Subtotal
$ 21,903.9
100.0 % $ 20,854.8 $ 1,978.0
100.0 % 44,736.7
12,960.0
31,776.7
Adjustment Related to Unrealized
Investment Gains and Losses
(566.7)
(18.1)
(548.6)
Consolidated
$ 44,170.0 $ 12,941.9 $ 31,228.1
48
December 31, 2021
Gross
Claim Reserves
Policy
Reserves
%
Incurred
IBNR
%
Total
Total
Reinsurance
Ceded
Total Net
Group Disability
$
—
— % $ 5,350.2 $
766.6
25.9 % $ 6,116.8 $
52.3 $ 6,064.5
Group Life and Accidental Death &
Dismemberment
Voluntary Benefits
Individual Disability
Dental and Vision
Unum US Segment
56.7
1,752.2
456.1
—
0.3
8.1
2.1
—
715.8
47.6
1,412.0
0.9
281.0
51.3
150.4
11.5
4.2
0.4
6.6
0.1
1,053.5
1,851.1
2,018.5
12.4
4.4
23.7
1,049.1
1,827.4
205.7
1,812.8
0.1
12.3
2,265.0
10.5
7,526.5
1,260.8
37.2
11,052.3
286.2
10,766.1
Unum International Segment
211.2
1.0
2,110.7
156.0
9.6
2,477.9
94.3
2,383.6
Colonial Life Segment
2,471.8
11.4
322.8
115.5
1.9
2,910.1
3.2
2,906.9
Long-term Care
All Other
Closed Block Segment
10,842.2
5,800.8
16,643.0
50.2
26.9
77.1
2,300.1
9,363.2
11,663.3
271.7
237.4
509.1
10.9
40.4
51.3
13,414.0
7.4
13,406.6
15,401.4
13,095.5
2,305.9
28,815.4
13,102.9
15,712.5
Subtotal
$ 21,591.0
100.0 % $ 21,623.3 $ 2,041.4
100.0 % 45,255.7
13,486.6
31,769.1
Adjustment Related to Unrealized
Investment Gains and Losses
Consolidated
Key Assumptions
4,659.5
132.1
4,527.4
$ 49,915.2 $ 13,618.7 $ 36,296.5
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 differs from the investment yield of
the existing investment portfolio, the discount rate assumption on claims may be adjusted to reflect the impact
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 or long-term care 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 initial disability. We primarily use our own
claim experience to develop our claim resolution assumptions. These assumptions are established for the
49
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 and long-term care, 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 operational procedures,
economic trends such as the rate of unemployment, the level of consumer confidence, the emergence of new diseases, new trends
and developments in medical treatments, and legal trends and legislative changes, including changes to social security and other
government-based welfare benefits programs which provide policy benefit offsets, among other factors, may influence claim
incidence rates, claim resolution rates, and claim costs. In addition, for policies offering coverage for disability or long-term care
at advanced ages, the level and pattern of mortality rates at advanced ages will impact overall benefit costs. 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, while it is possible to evaluate the sensitivity of overall adequacy results
in our reserves based upon a change in each individual assumption, the actual impacts of changes to a variety of underlying
assumptions must be considered in the aggregate by product line in order to judge the overall potential implications to reserve
adequacy. The following section presents 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. As a result of the Closed Block individual disability reinsurance transaction discussed in the
"Executive Summary" contained herein Item 7, we no longer incorporate this block of business into our discussion of trends in
key assumptions below.
Trends in Key Assumptions
Our view on long-term mortality and morbidity expectations has not been impacted by the COVID-19 pandemic, given the
limited experience relative to the long-term nature of our products, the extraordinary nature of the event, and the fast pace of
medical advancements to fight the disease. We have experienced elevated mortality across our life product lines largely
resulting from the COVID-19 pandemic, and at this time we anticipate the mortality impacts of the pandemic may persist in the
short-term, albeit at a lower level than our experience in 2020, 2021, and the first quarter of 2022.
We have also experienced elevated disability claims incidence rates largely resulting from the COVID-19 pandemic including, in
our belief, the related impact on the social and economic environment. We have, at times, experienced an increase in our group
long-term disability morbidity claim incidence trends during and following a recessionary period and believe claim incidence
trends may continue to follow general economic conditions and shifts in the demographics of the general workforce.
Generally, we do not expect 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.
Although interest rates increased in 2022, long-term interest rates supporting the majority of our lines of business remain below
historical norms. The assumptions we used to discount reserves during this period were slightly lower than historical levels for
certain of our product lines. Reserve discount rate assumptions for new policies and new claims are periodically adjusted to
reflect our current and expected net investment returns. Changes in our average discount rate assumptions tend to occur
gradually over a longer period of time because of the long-duration investment portfolios which support the reserves for the
majority of our lines of business.
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.
Claim resolution rates are very sensitive to operational and environmental changes and have a greater chance of significant
50
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. While claim resolution rates in our Unum US group long-term disability product line
have shown some variability over the last several years, they have exhibited an increasing trend.
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 for our Unum US group long-term disability product
could produce a change of $100 million which represents 1.8 percent of our reserve balance. Of the assumptions impacting the
estimated change in reserves, the largest contributor is the claim resolution rate for which we assumed a change of approximately
10 percent.
During the third quarter of 2022, we completed a review of policy and claim reserve adequacy, which incorporated our most
recent experience and included a review of all material assumptions. Based on our analysis, during the third quarter of 2022, we
updated our reserve assumptions to reflect our current estimate of future benefit obligations and determined that our claims
reserves in our US group long-term disability product line and our waiver of premium reserves for our Unum US group life
product line should be reduced by $121.0 million and $34.0 million before tax, respectively, due primarily to sustained
improvement in claim recovery trends since our last assumption update, partially offset by lower social security benefit offsets
for our group long-term disability product line.
In addition to our Unum US group long-term disability line of business, we consider variability in our reserve assumptions
related to long-term care policy reserves. These reserves are held under the gross premium valuation method and do not change
after the date of loss recognition unless reserves are again determined to be deficient. As such, positive developments will result
in the accumulation of reserve margin, while adverse developments would result in an additional reserve charge. Policy reserves
for long-term care are based upon a number of key assumptions, and each assumption has various factors which may impact the
long-term outcome. Key assumptions with respect to morbidity, mortality, claims incidence and resolutions, persistency, interest
rates, and future premium rate increases must incorporate extended views of expectations for many years into the future.
Reserves are highly sensitive to these estimates.
Our long-term care discount rate assumption reflects our expectation that the low interest rate environment will continue to
persist and our expected impact on future long-term care new money yield rates. Our expectation for long-term care new money
yield rates assumes a 10-year treasury rate grading over a 7 year period, ending in 2027, to a rate of 3.25 percent, when we
assume no further increase. Partially offsetting the impact from the discount rate assumption was a favorable update to our
assumptions for premium rate increases based on approvals and inventory updates since the third quarter of 2018. The
remaining key assumptions for our long-term care policy reserves remain materially unchanged from the third quarter of 2018.
Sensitivity analysis related to our key assumptions for long-term care reserves along with the potential impact to our reserve
balance is as follows. This sensitivity analysis was completed as of the date of our assumption update in the fourth quarter of
2020.
Long-Term Care Assumption
Sensitivity
Unfavorable
Favorable
(in millions of dollars)
Active Policy Terminations
Claim Incidence
Claim Terminations
Morbidity/Mortality Improvement*
Future Unapproved Rate Increases
New Money Rate
Discount Rate
7.00 % $
3.50 % $
2.00 % $
No Improvement/2.00% $
10.00 % $
0.25 % $
0.25 % $
420 $
435 $
260 $
1,000 $
80 $
275 $
500 $
395
445
255
650
80
275
500
* Morbidity improvement has been observed in our claims experience over a ten year period, normalized for variables such as
age and claims type.
Key assumptions and related impacts are also heavily interrelated in both their outcome and in their effects on reserves. For
example, changes in the view of morbidity and mortality might be mitigated by either potential future premium rate increases
and/or morbidity improvements due to general improvement in health and/or medical breakthroughs. There is potentially a wide
range of outcomes for each assumption and in totality.
51
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. We closely
monitor emerging experience and use these results to inform our view of long-term assumptions.
Effective January 1, 2023 we will adopt ASU 2018-12, which will significantly change how we value our reserves. We are
continuing our implementation efforts and are evaluating the effects of complying with this update. See "Accounting
Developments" contained herein in this Item 7 and Note 1 of the "Notes to the Consolidated Financial Statements" contained
herein in Item 8 for further discussion on the impacts upon adoption.
Deferred Acquisition Costs (DAC)
We defer incremental direct costs associated with the successful acquisition of new or renewal insurance contracts and amortize
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.
Approximately 90.7 percent of our DAC relates to non-interest sensitive products, and we amortize DAC for these products in
proportion to the premium income we expect to receive over the life of the policies. DAC related to interest sensitive policies is
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. Key assumptions used in developing the future amortization of
DAC are persistency, premium income, and for our interest sensitive products, mortality margins and investment returns. We
use our own historical experience and expectation of the future performance of our businesses in determining our assumptions.
For non-interest sensitive products, the estimated premium income in the early years of the amortization period is generally
higher than in the later years due to the anticipated cumulative effect of 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. Our key assumptions used to develop
the future amortization of acquisition costs deferred during 2022 did not change materially from those used in 2021. Generally,
we do not expect our key assumptions 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.
Loss recognition and recoverability testing is performed on an annual basis, or more frequently if appropriate, using best
estimate assumptions as to future experience as of the date of the test. Insurance contracts are grouped for each major product
line within a segment when we perform the loss recognition and recoverability tests. Key assumptions used in this testing
include the discount rate, persistency, and the claim assumptions. See "Reserves for Policy and Contract Benefits" herein in this
Item 7 for further discussion regarding loss recognition testing and the related key assumptions.
If loss recognition or recoverability testing indicates that deferred acquisition costs are not recoverable, the deficiency is charged
to expense. Using our best estimate assumptions, during the fourth quarter of 2021, we determined that $15.1 million of
acquisition costs related to the Unum US group life and accidental death and dismemberment product line were not recoverable
driven by losses resulting from COVID-19 life claims, and, as a result these amounts were not deferred.
52
The following are our current assumptions regarding our DAC balances:
Amortization
Period
4-6
4-6
20
10-23
4
3
3
20
30
15
25
19
Unum US
Group Disability
Group Life and Accidental Death &
Dismemberment
Supplemental and Voluntary:
Individual Disability
Voluntary Benefits
Dental and Vision
Unum International
Unum UK
Group Long-term Disability
Group Life
Supplemental
Unum Poland
Colonial Life
Accident, Sickness, and Disability
Life
Cancer and Critical Illness
Totals
Balance Remaining as a %
of Year-end DAC Balance
Year 10
Year 3
Year 15
26%
26%
74%
59%
26%
0%
0%
53%
78%
73%
75%
77%
0%
0%
26%
17%
0%
0%
0%
10%
54%
11%
24%
23%
0%
0%
5%
5%
0%
0%
0%
1%
42%
0%
6%
4%
DAC Balances
at December 31
2022
2021
(in millions of dollars)
$
94.9 $
93.7
63.2
59.1
437.8
475.5
18.0
426.5
501.0
15.9
2.6
1.8
10.0
22.2
540.8
362.0
223.5
2.6
1.6
13.1
18.1
557.4
292.4
226.5
$ 2,252.3 $ 2,207.9
Amortization of DAC is adjusted to reflect actual experience for assumptions which deviate compared to the anticipated
experience. Any deviations from projections may result in a change to the rate of amortization in the period such events occur.
As an example, for our non-interest sensitive products, we may experience accelerated amortization if policies terminate earlier
than projected, or we may experience a slower rate of amortization if policies persist longer than projected. Our actual
experience has not varied materially from our assumptions during the last three years.
See Note 1 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion of our DAC
accounting policy.
Effective January 1, 2023 we will adopt ASU 2018-12 which will significantly change how we account for the amortization of
DAC. We are continuing our implementation efforts and are evaluating the effects of complying with this update. See
"Accounting Developments" contained herein in this Item 7 and Note 1 of the "Notes to the Consolidated Financial Statements"
contained herein in Item 8 for further discussion on the impacts upon adoption.
Fair Value of Investments
All of our fixed maturity securities, which are classified as available-for-sale, and all of our unrestricted equity securities 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 report our investments in private equity partnerships at
our share of the partnerships' net asset value or its equivalent (NAV), as a practical expedient for fair value.
Fair value is 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 our intent and/or ability to sell the asset or transfer the liability at the measurement date. We generally use
valuation techniques consistent with the market approach, and to a lesser extent, the income approach. The market approach
53
uses prices and other relevant information from market transactions involving identical or comparable assets or liabilities and the
income approach converts future amounts, such as cash flows or earnings, to a single present value amount, or a discounted
amount. We believe the market approach valuation technique provides more observable data than the income approach,
considering the types of investments we hold.
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. The market sources from which we obtain or derive the fair values of our assets and liabilities carried at market value
include quoted market prices for actual trades, price quotes from third party pricing vendors, price quotes we obtain from outside
brokers, discounted cash flow, and observable prices for similar publicly traded or privately traded issues that incorporate the
credit quality and industry sector of the issuer. Our fair value measurements could differ significantly based on the valuation
technique and available inputs.
Inputs to valuation techniques 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
and/or the risk inherent in the inputs to the valuation technique. We use observable and unobservable inputs in measuring the
fair value of our financial instruments. 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
developed based on the best information available in the circumstances, and reflect our evaluation of the assumptions market
participants would use in pricing the asset or liability.
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, 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, 2022, approximately 13.0 percent of our fixed maturity securities were categorized as Level 1, 86.5 percent
as Level 2, and 0.5 percent as Level 3. Level 1 is the highest category of the three-level fair value hierarchy classification
wherein inputs are unadjusted and represent quoted prices in active markets for identical assets or liabilities. The Level 2
category includes assets or liabilities valued using inputs (other than those included in the Level 1 category) that 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. The Level 3 category is the lowest category of the fair value hierarchy and reflects
the judgment of management regarding what market participants would use in pricing assets or liabilities at the measurement
date using unobservable inputs to extrapolate an estimated fair value.
Rapidly changing credit and equity market conditions can materially impact the valuation of securities, and the period to period
changes in value can vary significantly.
See "Quantitative and Qualitative Disclosures about Market Risk" for information regarding the sensitivity of the estimated fair
value for fixed maturity securities contained herein in Item 7A. See Note 2 of the "Notes to Consolidated Financial Statements"
contained herein in Item 8.
54
Investment Credit Losses
One of the significant estimates related to investments is our credit loss valuation. In determining when a decline in fair value
below amortized cost of a fixed maturity security represents a credit loss, we evaluate the following factors:
• Whether we expect to recover the entire amortized cost basis of the security
• Whether we intend to sell the security or will be required to sell the security before the recovery of its amortized cost
basis
The significance of the 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
• Whether the security is current as to principal and interest payments
•
•
•
•
• Market conditions
•
•
•
•
•
Rating agency and governmental actions
Bid and offering prices and the level of trading activity
Adverse changes in estimated cash flows for securitized investments
Changes in fair value subsequent to the balance sheet date
Any other key measures for the related security
We evaluate available information, including the factors noted above, both positive and negative, in reaching our conclusions. In
particular, we also consider the strength of the issuer’s balance sheet, its debt obligations and near term funding requirements,
cash flow and liquidity, the profitability of its core businesses, the availability of marketable assets which could be sold to
increase liquidity, its industry fundamentals and regulatory environment, and its access to capital markets. Although all
available and applicable factors are considered in our analysis, our expectation of recovering the entire amortized cost basis of
the security, whether we intend to sell the security, whether it is more likely than not we will be required to sell the security
before recovery of its amortized cost, and whether the security is current on principal and interest payments are the most critical
factors in determining whether a credit loss is possible. The significance of the decline in value is also an important factor, but
we generally do not record a credit loss based solely on this factor, since often other more relevant factors will impact our
evaluation of a security.
While determining whether a credit loss exists is a judgmental area, we utilize a formal, well-defined, and disciplined process to
monitor and evaluate our fixed income investment portfolio, supported by issuer specific research and documentation as of the
end of each period. The process results in a thorough evaluation of investments and the recording of credit losses on a timely
basis for investments determined to have credit loss.
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. We estimate an allowance for credit losses that we expect to incur over the life of our
mortgage loans using a probability of default method. For each loan, we estimate the probability that the loan will default before
its maturity (probability of default) and the amount of the loss if the loan defaults (loss given default). These two factors result
in an expected loss percentage that is applied to the amortized cost of each loan to determine the expected credit loss. Mortgage
loans are reported at amortized cost less the allowance for expected credit losses with the change in expected credit losses
recognized as an investment loss in our consolidated statements of income.
There are a number of significant risks inherent in the process of monitoring our investments for credit losses and determining
when and if a credit loss exists. 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.
See Notes 1 and 3 of the "Notes to Consolidated Financial Statements" contained herein in Item 8.
55
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. qualified and non-qualified defined benefit pension plans comprise the majority of our total
benefit obligation and benefit cost. We maintain a separate defined benefit plan for eligible employees in our U.K. operation.
The U.S. defined benefit pension plans were closed to new entrants on December 31, 2013, the OPEB plan was closed to new
entrants on December 31, 2012, and the U.K. plan was closed to new entrants on December 31, 2002.
Assumptions
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, the long-term rate of return on plan assets, and mortality
rates. 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, and the U.K. pension plan also uses expected
cost of living increases to plan benefits.
The assumptions chosen for our pension and OPEB plans are reviewed annually, using a December 31 measurement date for
each of our plans unless we are required to perform an interim remeasurement. The discount rate, expected long-term rate of
return, and mortality rate 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 plan amendments, actual experience being different from our assumptions,
special benefits to terminated employees, and/or changes in benefits provided under the plans.
•
•
Discount rate - This interest assumption is based on the yield derived from a portfolio of high quality fixed income
corporate debt instruments that reasonably match the timing and amounts of projected future benefits for each of our
retirement-related benefit plans. The rate is determined at the measurement date.
Long-term rate of return - This assumption is selected from a range of probable return outcomes from an analysis of the
asset portfolio. The market-related value as it relates to our estimate of long-term rate of return equals the fair value of
plan assets, determined as of the measurement date. The return on plan assets recognizes all asset gains and losses,
including changes in fair value, through the measurement date. Our expectations for the future investment returns of
the asset categories are based on a combination of historical market performance, evaluations of investment forecasts
obtained from external consultants and economists, and current market yields. The expected return for the total
portfolio is calculated based on the plan's strategic asset allocation. 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. A lower long-term rate of return on plan assets increases our net periodic benefit
cost.
Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/
liability studies, and quarterly investment portfolio reviews. Risk tolerance is established through consideration of plan
liabilities, plan funded status, and corporate financial condition. We believe our investment portfolios are well
diversified by asset class and sector, with no undue risk concentrations in any one category. See Note 9 of the "Notes to
Consolidated Financial Statements" contained herein in Item 8 for further discussion of the investment portfolios for our
plans.
• Mortality rate - This assumption reflects our best estimate, as of the measurement date, of the life expectancies of plan
participants in order to determine the expected length of time for benefit payments. We derive our assumptions from
industry mortality tables.
56
The weighted average assumptions used in the measurement of our net periodic benefit costs for the years ended December 31
are as follows:
Assumption
Discount Rate
Expected Long-term Rate of Return on Plan Assets
2023
5.70 %
7.25 %
2022
3.10 %
6.00 %
2023
4.80 %
6.70 %
2022
2.00 %
4.20 %
2023
5.70 %
5.75 %
2022
2.90 %
5.75 %
Pension Benefits
U.S. Plans
U.K. Plan
OPEB
The following illustrates the sensitivity of the below items to a 50 basis point change in the discount rate or the expected long-
term rate of return on plan assets:
($ in millions)
Assumption
Discount Rate
Discount Rate
Expected Long-term Rate of Return on Plan Assets
Expected Long-term Rate of Return on Plan Assets
Benefit Obligation and Fair Value of Plan Assets
At or for the Year Ended December 31, 2022
Net Periodic
Benefit Cost,
Before Tax
Benefit
Obligation
Stockholders'
Equity, After
Tax
$
(1.7) $
0.6
(10.2)
10.2
(103.6) $
113.7
N/A
N/A
82.1
(90.1)
N/A
N/A
Change
+ 50 bp
- 50 bp
+ 50 bp
- 50 bp
During 2022, the fair value of plan assets in our U.S. qualified defined benefit pension plan decreased $493.4 million, or 27.4
percent due to an unfavorable return on assets which resulted in a loss of approximately 22.8 percent and the payment of benefits
and expenses. The fair value of plan assets in our U.K. pension plan decreased £108.1 million, or 48.2 percent, due primarily to
an unfavorable return on assets which resulted in a loss of approximately 46.2 percent. Although our rate of return on plan assets
for 2022 was lower than our assumptions used in the measurement of our net periodic benefit costs, we believe our assumptions
appropriately reflect the impact of the current economic environment and our expectations for the future investment returns
based on the plan's asset allocation.
As of December 31, 2022, our pension and OPEB plans have an aggregate unrecognized net actuarial loss of $569.9 million and
an unrecognized prior service credit of $1.7 million, which together represent the cumulative liability and asset gains and losses
as well as the portion of prior service credits that have not been recognized in pension expense. The unrecognized net actuarial
loss for our pension plans, which is $601.5 million at December 31, 2022, will be amortized over the average remaining life
expectancy of the plan, which is approximately 24 years for the U.S. plan and 28 years for the U.K. plan, to the extent that it
exceeds the 10 percent corridor, as described below. The unrecognized net actuarial gain of $31.6 million for our OPEB plan
will be amortized over the average future working life of OPEB plan participants, estimated at two years, to the extent the gain is
outside of the corridor. The corridor for the pension and OPEB plans is established based on the greater of 10 percent of the plan
assets or 10 percent of the benefit obligation. At December 31, 2022, $358.4 million of the actuarial loss was outside of the
corridor for the U.S. plans and £56.2 million was outside of the corridor for the U.K. plan. At December 31, 2022, $23.1 million
of the actuarial gain was outside of the corridor for the OPEB plan.
The amortization of the unrecognized actuarial gain or loss and the unrecognized prior service credit is a component of our net
periodic benefit cost and equaled $15.5 million, $22.4 million, and $19.7 million in 2022, 2021, and 2020, respectively.
The fair value of plan assets in our U.S. qualified defined benefit pension plan was $1,308.3 million at December 31, 2022,
compared to $1,801.7 million at December 31, 2021. The plan was in an underfunded position of $118.7 million and $185.6
million at December 31, 2022 and December 31, 2021, respectively. This year-over-year change was due primarily to the
decrease in the benefit obligation due to the increase in discount rate, partially offset by a loss on plan assets.
The fair value of plan assets in our U.K. pension plan was £116.3 million at December 31, 2022, compared to £224.4 million at
December 31, 2021. The U.K. pension plan was in an underfunded position of £14.4 million and in an overfunded position of
£18.8 million at December 31, 2022 and 2021, respectively. This year-over-year change was due primarily to a loss on plan
assets, partially offset by the decrease in the benefit obligation due to the increase in discount rate.
57
The fair value of plan assets in our OPEB plan was $8.5 million and $9.0 million at December 31, 2022 and 2021, respectively.
These assets represent life insurance contracts 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.
See Note 9 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion.
Income Taxes
We provide for federal, state, and foreign income taxes currently payable, as well as those deferred due to temporary differences
between the financial reporting and tax bases of assets and liabilities. Our accounting for income taxes represents our best
estimate of various events and transactions. 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.
We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.
Significant judgment is required in determining valuation allowances. In evaluating the ability to recover deferred tax assets, we
consider 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. We consider our
investment strategies when evaluating the ability to recover deferred tax assets on unrealized losses on investments. In the event
we determine that we most likely will not be able to realize all or part of our deferred tax assets in the future, an increase to the
valuation allowance is recorded 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 will be realized, the previously provided valuation allowance is reversed.
In establishing a liability for unrecognized tax benefits, assumptions are made in determining whether, and to what extent, a tax
position may be sustained. GAAP 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 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, the difference will be recognized as a tax benefit or expense in the period the
settlement is effective.
Changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on our provision for
income tax and our effective tax rate, which could significantly affect the amounts reported in our financial statements.
See "Regulation" contained herein in Item 1. See Note 7 of the "Notes to Consolidated Financial Statements" contained herein
in Item 8.
Contingent Liabilities
On a quarterly basis, we review relevant information with respect to litigation and contingencies to be reflected in our
consolidated financial statements. An estimated loss is accrued when it is probable that a liability has been incurred and the
amount of the loss can be reasonably estimated. It is possible that our results of operations or cash flows in a particular period
could be materially affected by an ultimate unfavorable outcome of pending litigation or regulatory matters depending, in part,
on our results of operations or cash flows for the particular period. See Note 14 of the "Notes to Consolidated Financial
Statements" contained herein in Item 8.
58
Accounting Developments
In 2018, the Financial Accounting Standards Board issued Accounting Standard Update 2018-12, “Targeted Improvements to
the Accounting for Long-Duration Contracts”. The update is effective for periods beginning January 1, 2023. We will adopt
this update effective January 1, 2023 using the modified retrospective approach with changes applied as of the beginning of the
earliest period presented or January 1, 2021, also referred to as the transition date. We are continuing our implementation efforts
and are evaluating the effects of complying with this update.
Our modified retrospective adoption is expected to result in an increase to net income and after-tax adjusted operating income
during 2021 and 2022. We expect the increase in 2021 net income to be between approximately $145 million and $175 million,
or between $0.70 and $0.85 per diluted per common share. We expect the increase in 2022 net income to be between
approximately $80 million and $110 million, or $0.40 and $0.55 per diluted common share. We expect the increase in 2021
after-tax adjusted operating income to be between approximately $25 million and $55 million, or between $0.12 and $0.27 per
diluted common share. We expect the increase in 2022 after-tax adjusted operating income to be between approximately $95
million and $125 million, or $0.47 and $0.62 per diluted common share.
The net favorable impact of the recast of our after-tax adjusted operating income for 2021 and 2022 shown above is due
primarily to the following changes:
•
•
•
•
•
Updating the lifetime cohort net premium ratios (lifetime loss ratio) for actual experience each reporting period will
generally cause earnings patterns to be more consistent from period to period, with variances in experience reflected in
earnings over the cohort lifetime. This will result in an unfavorable impact to income for 2021 and 2022. Our Unum
US supplemental and voluntary, Colonial Life, and certain of our Closed Block product lines were most affected by this
change due to generally favorable benefits experience observed during 2021 and 2022.
Alignment of amortization of deferred acquisition costs to a constant level basis and modification of amortization
periods to reflect the expected term of the related contracts could result in either higher or lower income for the affected
product lines. This will result in a net favorable impact to income for 2021 and 2022. Our Unum US and Colonial Life
product lines were most affected by this change with an overall increased amortization period.
Accelerated recognition of the provision for adverse deviation or other differences from current best estimate values for
policies issued prior to the transition date and due to not establishing the provision for policies issued on or after the
transition date will generally result in higher income most notably in the initial years after the transition date. This will
result in a favorable impact to income for 2021 and 2022. Our Unum US supplemental and voluntary and Colonial Life
product lines were most affected by this change.
Establishing reserves for claims incurred on or after the transition date at interest rates prescribed by the update could
result in either higher or lower income for the affected product lines depending on the policy issue date and the interest
rate environment at that time. This will result in an unfavorable impact to income for 2021 and a favorable impact to
income for 2022. Certain of our Unum US and Closed Block product lines were most affected by this change.
Updating cash flow assumptions could result in either higher or lower income. Certain of our Unum US, Colonial Life,
and Closed Block product lines were most affected by this change.
We expect that all of the above changes will continue to impact our earnings in periods subsequent to 2021 and 2022 to varying
degrees and over varying time periods.
We do not have products with market risk benefits. This update will also significantly expand our disclosures.
Although this update will significantly impact our GAAP-based financial position and results of operations, the update will not
impact cash flows, statutory-based financial position or results of operations, or our view of our businesses.
For further information on new accounting standards and the impacts on our financial position and results of operations, see Note
1 of the "Notes to Consolidated Financial Statements" contained herein in Item 8.
59
Consolidated Operating Results
(in millions of dollars)
Revenue
Premium Income
Net Investment Income
Net Investment Gain (Loss)
Other Income
Total Revenue
2022
Year Ended December 31
2021
% Change
% Change
2020
$ 9,623.4
2,122.2
(15.7)
261.1
11,991.0
1.5 % $ 9,481.0
2,213.2
(4.1)
76.7
(120.5)
242.9
7.5
12,013.8
(0.2)
1.1 % $ 9,378.1
2,360.7
(6.2)
1,199.1
(93.6)
224.2
8.3
13,162.1
(8.7)
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits
Commissions
Interest and Debt Expense
Cost Related to Early Retirement of Debt
Deferral of Acquisition Costs
Amortization of Deferred Acquisition Costs
Compensation Expense
Other Expenses
Total Benefits and Expenses
6,936.7
1,086.4
188.5
4.2
(556.9)
591.0
1,089.5
1,020.2
10,359.6
(8.7)
4.7
1.9
(93.8)
9.6
0.8
11.7
1.2
(5.4)
7,598.6
1,038.1
185.0
67.3
(508.1)
586.1
975.2
1,008.6
10,950.8
(15.3)
(1.8)
(1.7)
N.M.
(11.8)
(3.3)
2.3
1.2
(10.2)
8,972.9
1,057.3
188.2
—
(576.2)
606.1
953.2
996.6
12,198.1
Income Before Income Tax
Income Tax
1,631.4
317.2
53.5
32.8
1,063.0
238.8
10.3
39.6
964.0
171.0
Net Income
$ 1,314.2
59.5
$
824.2
3.9
$
793.0
N.M. = not a meaningful percentage
Fluctuations in exchange rates, particularly between the British pound sterling and the U.S. dollar for our U.K. operations, have
an effect on our consolidated financial results. In periods when the pound weakens relative to the preceding period, 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 relative to the prior period.
The weighted average pound/dollar exchange rate for our Unum UK line of business was 1.222, 1.377, and 1.287 for 2022,
2021, and 2020, respectively. If the 2021 and 2020 results for our U.K. operations had been translated at the 2022 exchange rate,
our adjusted operating revenue by segment would have been lower by approximately $84 million and $32 million in 2021 and
2020, respectively. Additionally, our adjusted operating income would have been lower by approximately $11 million and $4
million in 2021 and 2020, respectively. 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 item and not a reflection of operations or profitability in the U.K.
Premium income increased in 2022 compared to 2021 due primarily to increases in each of our principal operating business
segments, while premium income declined in our Closed Block segment. Premium income increased in 2021 compared to 2020
due primarily to increases in our Unum US and Unum International segments, partially offset by a decrease in our Colonial Life
segment.
Net investment income was lower in 2022, relative to 2021, due to lower miscellaneous investment income and a decline in the
yield on invested assets, partially offset by higher investment income from inflation index-linked bonds held by Unum UK and a
higher level of invested assets. Net investment income in 2021 was lower than 2020 due to a decrease in the level of invested
assets supporting the Closed Block individual disability product line resulting from the previously discussed reinsurance
60
transaction and a decline in the yield on invested assets, partially offset by higher miscellaneous investment income, particularly
related to our private equity partnerships.
Credit losses on fixed maturity securities of $4.6 million were recognized in net investment gains and losses in 2022 compared to
$9.3 million and $53.6 million in 2021 and 2020, respectively. Also included in net investment gains and losses were changes in
the fair value of an embedded derivative in a modified coinsurance arrangement, which resulted in gains (losses) of $16.2
million, $9.7 million, and $(17.0) million in 2022, 2021, and 2020, respectively. The changes in the embedded derivative are
primarily driven by movements in credit spreads in the overall investment market. Included in the net investment gains and
losses in 2021 and 2020 were net realized investment gains of $67.6 million and $1,302.3 million, respectively, related to the
transfer of investments in the Closed Block individual disability reinsurance transaction. Included in the net investment gains
and losses in 2020 were $36.6 million of impairment losses related to certain of our home office buildings available for lease and
classified as investment real estate. See Notes 3 and 4 of the "Notes to Consolidated Financial Statements" contained herein in
Item 8 for further discussion.
Other income is primarily comprised of fee-based service products in the Unum US segment, which include leave management
services and administrative services only (ASO) business, and the underlying results and associated net investment income of
certain assumed blocks of reinsured business in the Closed Block segment.
Overall benefits experience was favorable in 2022 relative to 2021 and 2020 with a consolidated benefit ratio of 72.1 percent in
2022, compared to 80.1 percent and 95.7 percent in 2021 and 2020, respectively. Excluding the impacts of the reserve
assumption updates and the impacts from both phases of the Closed Block individual disability reinsurance transaction, the
consolidated benefit ratios were 73.7 percent, 80.7 percent, and 80.2 percent in 2022, 2021, and 2020 respectively. For further
discussion on the reserve assumption updates and the Closed Block individual disability reinsurance transaction, see the
"Executive Summary" contained herein in this Item 7 and Notes 6 and 12 of the "Notes to Consolidated Financial Statements"
contained herein in Item 8. The underlying benefits experience for each of our operating business segments is discussed more
fully in "Segment Results" contained herein in this Item 7.
Commissions and the deferral of acquisition costs were higher in 2022 compared to 2021 driven primarily by in-force block
growth in our Unum US segment and higher sales in our Colonial Life and Unum US segments. Also impacting the increase in
the deferral of acquisition costs in 2022 was lower expected recoverability for the Unum US group life product line in 2021 that
did not recur in 2022. The amortization of deferred acquisition costs was slightly higher compared to 2021 due primarily to a
higher level of policy terminations for our Colonial Life segment, partially offset by a lower level of policy terminations related
to newer policies in the Unum US voluntary benefits product line. Commissions and the deferral of acquisition costs were lower
in 2021 compared to 2020 driven primarily by lower sales in our Unum US voluntary benefits product line and lower prior
period sales in the Colonial Life segment. Also impacting the decrease in the deferral of acquisition costs in 2021 compared to
2020 was lower expected recoverability in the short-term for the Unum US group life product line. The decrease in commissions
in 2021 compared to 2020 was partially offset by in-force block growth in both the Unum US group disability product line and
the Unum International segment. The amortization of deferred acquisition costs was lower in 2021 compared to 2020, due to a
decline in the level of the deferred asset primarily in our Unum US voluntary benefits product line.
In 2022, cost related to early retirement of debt includes costs associated with the redemption of $350.0 million aggregate
principal amount of our 4.000% senior notes due 2024 and costs related to the retirement of $14.0 million aggregate liquidation
amount of the 7.405% capital securities due 2038 issued by Provident Financing Trust I (the Trust), which resulted in the
reduction of a corresponding principal amount of our 7.405% junior subordinated debt securities due 2038 then held by the
Trust. In 2021, cost related to early retirement of debt includes costs associated with the purchase and retirement of
$500.0 million aggregate principal amount of our 4.500% senior notes due 2025. See Note 8 of the "Notes to Consolidated
Financial Statements" contained herein in Item 8 for further information.
Other expenses and compensation expense, on a combined basis, increased in 2022 compared to 2021 due primarily to increases
in employee-related costs, operational investments in our business, and growth in our fee-based service products. The increases
are partially offset by a reduction in the amortization of the cost of reinsurance. Other expenses and compensation expense, on a
combined basis, increased in 2021 compared to 2020 due primarily to the amortization of the cost of reinsurance related to the
Closed Block individual disability reinsurance transaction, an impairment loss on internal-use software, and growth in our fee-
based service products, partially offset by lower transaction costs related to the Closed Block individual disability reinsurance
transaction, a decrease in the allowance for expected credit losses on premiums receivable and our continued focus on expense
management and operating efficiencies.
61
Our effective income tax rate for 2022 was 19.4 percent, compared to 22.5 percent in 2021 and 17.7 percent in 2020. Our 2022
effective tax rate differed from the U.S. statutory rate of 21 percent primarily due to the foreign tax rate differential. Our 2021
effective tax rate differed from the U.S. statutory rate due to unfavorable impacts of the U.K. tax rate increase enacted in June
2021. Our 2020 effective tax rate differed from the U.S. statutory rate due to favorable adjustments related to the impact of the
net operating loss carryback and favorable tax credits, partially offset by the unfavorable impact of the U.K tax rate increase
enacted in July 2020. See Note 7 in the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further
discussion.
Consolidated Sales Results
Shown below are sales results for our three principal operating business segments.
(in millions)
Unum US
2022
$ 1,115.3
Year Ended December 31
2021
% Change
% Change
2020
18.4 % $
941.7
(5.8) % $
999.6
Unum International
$
133.7
26.4 % $
105.8
16.9 % $
90.5
Colonial Life
$
508.1
5.9 % $
479.8
16.1 % $
413.1
Sales shown in the preceding chart generally represent the annualized premium income on new sales which we expect to receive
and report as premium 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 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 income over a 12 month period, while premium income reported in our financial statements is reported
on an "as earned" basis rather than an annualized basis and also includes renewals and persistency of in-force policies written in
prior years as well as current new sales.
Sales, persistency of the existing block of business, employment and salary growth, and the effectiveness of a renewal program
are indicators of growth in premium income. Trends in new sales, as well as existing market share, also indicate the potential for
growth in our respective markets and the level of market acceptance of price levels and new product offerings. Sales results may
fluctuate significantly due to case size and timing of sales submissions.
See "Segment Results" as follows for a discussion of sales by segment.
Segment Results
Our reporting segments are comprised of the following: Unum US, Unum International, Colonial Life, Closed Block, and
Corporate. Financial information for each of our reporting segments is as follows.
In describing our results, we may at times note certain items and exclude the impact on financial ratios and metrics to enhance
the understanding and comparability of our operational performance and the underlying fundamentals, but this exclusion is not
an indication that similar items may not recur. We also measure and analyze our segment performance on the basis of "adjusted
operating revenue" and "adjusted operating income" or "adjusted operating loss", which differ from total revenue and income
before income tax as presented in our consolidated statements of income due to the exclusion of investment gains and losses and
certain other items. These performance measures are in accordance with GAAP guidance for segment reporting, but they should
not be viewed as a substitute for total revenue, income before income tax, or net income. See "Reconciliation of Non-GAAP
Financial Measures" contained herein in this Item 7.
62
Unum US Segment
The Unum US segment is comprised of the group disability, group life and accidental death and dismemberment, and
supplemental and voluntary lines of business. The group disability line of business includes long-term and short-term disability,
medical stop-loss, and fee-based service products. The supplemental and voluntary line of business includes voluntary benefits,
individual disability, and dental and vision products.
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, except ratios)
Adjusted Operating Revenue
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
2022
$ 6,258.3
676.3
196.3
7,130.9
3,941.5
614.4
(273.1)
294.9
1,427.5
6,005.2
Year Ended December 31
2021
% Change
% Change
2020
3.0 % $ 6,078.0
721.6
(6.3)
170.0
15.5
6,969.6
2.3
1.0 % $ 6,018.9
720.3
0.2
154.9
9.7
6,894.1
1.1
(9.2)
5.3
12.5
(7.6)
10.6
(4.5)
4,338.8
583.4
(242.7)
319.0
1,291.2
6,289.7
4.8
(1.9)
(16.7)
(6.5)
0.4
3.6
4,138.7
594.9
(291.5)
341.0
1,285.6
6,068.7
Income Before Income Tax and Net Investment Gains
and Losses
Reserve Assumption Updates
Adjusted Operating Income
1,125.7
(155.0)
$ 970.7
65.6
(27.9)
108.8
679.9
(215.0)
$ 464.9
(17.6)
N.M.
(43.7)
825.4
—
$ 825.4
Operating Ratios (% of Premium Income):
Benefit Ratio1
Other Expense Ratio2
Income Ratio
Adjusted Operating Income Ratio
65.5 %
22.1 %
18.0 %
15.5 %
74.9 %
20.7 %
11.2 %
7.6 %
68.8 %
20.8 %
13.7 %
1Excludes the $155.0 million and $215.0 million reserve decreases related to the assumption updates that occurred during the
third quarters of 2022 and 2021, respectively.
2Ratio of Other Expenses to Premium Income plus Unum US Group Disability Other Income, which is primarily related to fee-
based services.
N.M. = not a meaningful percentage
63
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)
Adjusted Operating Revenue
Premium Income
Group Long-term Disability
Group Short-term Disability
Total Premium Income
Net Investment Income
Other Income
Total
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits
Commissions
Deferral of Acquisition Costs
Amortization of Deferred Acquisition Costs
Other Expenses
Total
2022
$ 1,911.7
926.3
2,838.0
349.1
191.8
3,378.9
1,771.1
211.3
(53.1)
51.8
862.3
2,843.4
Year Ended December 31
2021
% Change
% Change
2020
4.6 % $ 1,827.8
864.0
7.2
2,691.8
5.4
379.6
(8.0)
165.7
15.8
3,237.1
4.4
— % $ 1,828.5
799.2
8.1
2,627.7
2.4
388.8
(2.4)
147.6
12.3
3,164.1
2.3
(4.2)
5.8
6.6
0.8
11.4
0.7
1,849.2
199.8
(49.8)
51.4
773.9
2,824.5
(3.8)
4.2
1.0
(3.2)
2.3
(1.7)
1,921.9
191.8
(49.3)
53.1
756.6
2,874.1
Income Before Income Tax and Net Investment Gains
and Losses
Reserve Assumption Updates
Adjusted Operating Income
535.5
(121.0)
$ 414.5
29.8
(43.7)
109.8
412.6
(215.0)
$ 197.6
42.3
N.M.
(31.9)
290.0
—
$ 290.0
Operating Ratios (% of Premium Income):
Benefit Ratio1
Other Expense Ratio2
Income Ratio
Adjusted Operating Income Ratio
Persistency:
Group Long-term Disability
Group Short-term Disability
66.7 %
28.5 %
18.9 %
14.6 %
90.7 %
88.9 %
76.7 %
27.1 %
15.3 %
7.3 %
89.6 %
87.4 %
73.1 %
27.3 %
11.0 %
90.8 %
88.7 %
1Excludes the $121.0 million and $215.0 million reserve decreases related to the assumption updates that occurred during the
third quarters of 2022 and 2021, respectively.
2Ratio of Other Expenses to Premium Income plus Other Income, which is primarily related to fee-based services.
N.M. = not a meaningful percentage
64
Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
Premium income increased compared to 2021, driven primarily by in-force block growth and favorable persistency. Net
investment income was lower compared to 2021 due to lower miscellaneous investment income, a decrease in the yield on
invested assets, and a lower level of invested assets. Other income increased relative to 2021 due primarily to continued growth
in our fee-based service products.
Benefits experience, excluding the impacts of the reserve assumption updates, was favorable compared to 2021 due primarily to
lower claims incidence in both the group short-term and long-term disability product lines as well as favorable claim recoveries
in our group long-term disability product line. See "Executive Summary” contained herein in this Item 7 and Note 6 of the
"Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion on the reserve assumption
updates.
Commissions were higher compared to 2021 due primarily to in-force block growth and favorable persistency. The deferral of
acquisition costs was higher compared to 2021 due primarily to higher sales. The amortization of deferred acquisition costs was
generally consistent with 2021. The other expense ratio, which includes other income that is primarily related to fee-based
service products, increased compared to 2021 due primarily to increases in employee-related costs and an increase in operational
investments in our business, particularly related to our growing fee-based service business.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Premium income increased compared to 2020, driven primarily by growth in our group short-term disability and medical stop-
loss product lines, partially offset by lower persistency. Net investment income was lower relative to 2020 due to a decline in
yield on invested assets, partially offset by higher miscellaneous investment income. Other income increased relative to 2020
due to continued growth in our fee-based service products.
Benefits experience, excluding the impact of the reserve assumption update, was unfavorable compared to 2020 due to higher
claims incidence in both the group long-term and short-term disability product lines, partially offset by favorable recoveries in
the long-term disability product line.
Commissions were higher compared to 2020 due primarily to in-force block growth in the group short-term disability and
medical stop-loss product lines. The deferral of acquisition costs was generally consistent with 2020. The amortization of
deferred acquisition costs decreased compared to 2020 due to a decline in the level of the deferred asset. The other expense ratio
was generally consistent with 2020.
65
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)
Adjusted 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
2022
$ 1,669.1
173.7
1,842.8
100.3
1.6
1,944.7
1,415.2
150.4
(37.3)
33.2
231.1
1,792.6
Year Ended December 31
2021
% Change
% Change
2020
1.7 % $ 1,641.9
165.1
5.2
1,807.0
2.0
104.0
(3.6)
1.7
(5.9)
1,912.7
1.7
0.1 % $ 1,640.5
163.9
0.7
1,804.4
0.1
97.2
7.0
2.4
(29.2)
1,904.0
0.5
(18.1)
3.9
77.6
(13.3)
8.1
(14.8)
1,728.8
144.7
(21.0)
38.3
213.8
2,104.6
17.6
1.0
(41.7)
(2.5)
4.1
15.5
1,470.4
143.2
(36.0)
39.3
205.3
1,822.2
Income (Loss) Before Income Tax and Net Investment
Gains and Losses
Reserve Assumption Update
Adjusted Operating Income (Loss)
152.1
(34.0)
$ 118.1
(179.3)
N.M.
(161.5)
(191.9)
—
$ (191.9)
N.M.
N.M.
N.M. $
81.8
—
81.8
Operating Ratios (% of Premium Income):
Benefit Ratio1
Other Expense Ratio
Income (Loss) Ratio
Adjusted Operating Income (Loss) Ratio
Persistency:
Group Life
Accidental Death & Dismemberment
78.6 %
12.5 %
8.3 %
6.4 %
88.9 %
87.9 %
95.7 %
11.8 %
(10.6) %
89.7 %
89.1 %
81.5 %
11.4 %
4.5 %
88.8 %
88.2 %
1Excludes the $34.0 million reserve decrease related to the assumption update that occurred during the third quarter of 2022.
N.M. = not a meaningful percentage
66
Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
Premium income was higher compared to 2021 driven by in-force block growth, partially offset by lower persistency. Net
investment income was lower compared to 2021 due to lower miscellaneous investment income, partially offset by an increase in
the level of invested assets and an increase in the yield on invested assets.
Benefits experience, excluding the impact of the reserve assumption update, was favorable compared to 2021 largely due to
lower mortality in the group life product line, resulting primarily from lessening impacts of COVID-19 on our insured
population.
Commissions were higher compared to 2021 due primarily to in-force block growth. The deferral of acquisition costs was
higher compared to 2021 primarily due to $15.1 million of acquisition costs that were not deferred in 2021 as a result of lower
expected recoverability driven by COVID-19 related life claims. The amortization of deferred acquisition costs was lower
compared to 2021 due to a decline in the level of the deferred asset. The other expense ratio increased compared to 2021 due
primarily to an increase in employee-related costs and operational investments in our business.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Premium income was generally consistent with 2020. Net investment income was higher compared to 2020 due to increased
miscellaneous investment income and a higher level of invested assets, partially offset by a decline in yield on invested assets.
Benefits experience was unfavorable compared to 2020 due to higher mortality in the group life product line, resulting primarily
from the impacts of COVID-19 on our insured population.
Commissions were higher compared to 2020 due primarily to in-force block growth. The deferral of acquisition costs was lower
compared to 2020 due to lower expected recoverability in the short-term driven by COVID-19 related life claims. The
amortization of deferred acquisition costs was lower compared to 2020 due to a decline in the level of the deferred asset. The
other expense ratio increased compared to 2020 due primarily to an increase in operational investments in our business, partially
offset by our continued focus on expense management and operating efficiencies.
67
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)
Adjusted Operating Revenue
Premium Income
Voluntary Benefits
Individual Disability
Dental and Vision
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
2022
$ 840.6
461.1
275.8
1,577.5
226.9
2.9
1,807.3
755.2
252.7
(182.7)
209.9
334.1
1,369.2
Year Ended December 31
2021
% Change
% Change
2020
(0.7) % $ 846.7
459.8
0.3
272.7
1.1
1,579.2
(0.1)
238.0
(4.7)
2.6
11.5
1,819.8
(0.7)
(3.3) % $ 875.2
456.0
0.8
255.6
6.7
1,586.8
(0.5)
234.3
1.6
4.9
(46.9)
1,826.0
(0.3)
(0.7)
5.8
6.3
(8.5)
10.1
0.6
760.8
238.9
(171.9)
229.3
303.5
1,360.6
1.9
(8.1)
(16.6)
(7.8)
(6.2)
(0.9)
746.4
259.9
(206.2)
248.6
323.7
1,372.4
Adjusted Operating Income
$ 438.1
(4.6)
$ 459.2
1.2
$ 453.6
Operating Ratios (% of Premium Income):
Benefit Ratios:
Voluntary Benefits
Individual Disability
Dental and Vision
Other Expense Ratio
Adjusted Operating Income Ratio
Persistency:
Voluntary Benefits
Individual Disability
Dental and Vision
42.1 %
44.1 %
71.6 %
21.2 %
27.8 %
75.8 %
89.5 %
79.9 %
43.2 %
42.8 %
72.6 %
19.2 %
29.1 %
75.8 %
89.7 %
86.0 %
42.2 %
48.8 %
60.6 %
20.4 %
28.6 %
72.7 %
89.5 %
85.0 %
68
Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
Premium income was generally consistent with 2021, with a decline in the voluntary benefits product line, mostly offset by
growth in the individual disability and dental and vision product lines. Net investment income decreased compared to 2021 due
primarily to lower miscellaneous investment income and a decrease in the level of invested assets.
Benefits experience for voluntary benefits was favorable compared to 2021 due to favorable claims experience in most products,
including within the life product line resulting primarily from lessening impacts of COVID-19 on our insured population.
Benefits experience for the individual disability product line was unfavorable compared to 2021 due primarily to a change in
estimate related to the unearned premium reserve in the fourth quarter of 2022 as well as higher average benefit size. Benefits
experience for the dental and vision product line was favorable compared to 2021 due primarily to lower claims incidence.
Commissions and the deferral of acquisition costs were higher compared to 2021 due primarily to higher sales in the individual
disability and voluntary benefits product lines. The amortization of deferred acquisition costs decreased compared to 2021 due
to a lower level of policy terminations related to newer policies, primarily in the voluntary benefits product line. The other
expense ratio increased compared to 2021 due primarily to an increase in employee-related costs, a net loss recognized in the
fourth quarter of 2022 on the recapture of a block of business in the voluntary benefits product line, and an increase in
operational investments in our business, partially offset by a decrease in the allowance for expected credit losses on premium
receivable balances.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Premium income decreased compared to 2020, with a decline in the voluntary benefits product line partially offset by growth in
the dental and vision and individual disability product lines. Net investment income increased in 2021 compared to 2020 due to
higher miscellaneous investment income, partially offset by a decline in yield on invested assets.
Benefits experience for voluntary benefits was less favorable compared to 2020 due primarily to higher incidence in the life
product line resulting from the impacts of COVID-19 on our insured population. Benefits experience for the individual
disability product line was favorable compared to 2020 due primarily to lower claims incidence. Benefits experience for the
dental and vision product line was unfavorable due primarily to higher claims incidence compared to 2020 where we
experienced significantly lower claims incidence resulting from the impacts of COVID-19.
Commissions and the deferral of acquisition costs were lower compared to 2020 due primarily to lower sales in the voluntary
benefits product line. The amortization of deferred acquisition costs decreased compared to 2020 due to a decline in the level of
the deferred asset, primarily in the voluntary benefits product line. The other expense ratio improved compared to 2020 due to
our continued focus on expense management and operational efficiencies. Also contributing to the improvement was the change
in the allowance for expected credit losses on premiums receivable, which was lower in 2021 compared to 2020.
69
Sales
(in millions of dollars)
Sales by Product
Group Disability and Group Life and AD&D
Group Long-term Disability
Group Short-term Disability
Group Life and AD&D
Subtotal
Supplemental and Voluntary
Voluntary Benefits
Individual Disability
Dental and Vision
Subtotal
Total Sales
Sales by Market Sector
Group Disability and Group Life and AD&D
Core Market (< 2,000 employees)
Large Case Market
Subtotal
Supplemental and Voluntary
Total Sales
2022
$
295.3
184.3
232.4
712.0
238.7
90.8
73.8
403.3
$ 1,115.3
Year Ended December 31
2021
% Change
% Change
2020
42.9 % $
29.2
3.8
24.2
3.2
21.1
18.3
9.4
18.4
$
206.6
142.7
223.8
573.1
231.2
75.0
62.4
368.6
941.7
(13.8) % $
(10.1)
(0.2)
(8.0)
(4.3)
5.0
(2.3)
(2.2)
(5.8)
$
239.7
158.7
224.3
622.7
241.6
71.4
63.9
376.9
999.6
$
457.5
254.5
712.0
403.3
$ 1,115.3
23.1 % $
26.2
24.2
9.4
18.4
$
371.5
201.6
573.1
368.6
941.7
(1.5) % $
(17.9)
(8.0)
(2.2)
(5.8)
$
377.0
245.7
622.7
376.9
999.6
Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
Group sales increased compared to 2021 due to higher sales to new and existing customers in both the large case market and the
core market, which we define as employee groups with fewer than 2,000 employees. The sales mix in the group market sector
for 2022 was approximately 63 percent core market and 37 percent large case market.
Voluntary benefits sales increased compared to 2021 primarily due to higher sales to existing customers in the core market and
higher sales to new customers in the large case market. Individual disability sales, which are primarily concentrated in the multi-
life market, increased compared to 2021 due to higher sales to both new and existing customers. Dental and vision sales
increased compared to 2021 driven by higher sales to both new and existing customers.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Group sales decreased compared to 2020 due primarily to lower sales to new and existing customers in the large case market and
lower sales in our medical stop-loss product, partially offset by higher sales to existing customers in the core market. The sales
mix in the group market sector for 2021 was approximately 65 percent core market and 35 percent large case market.
Voluntary benefits sales decreased compared to 2020, driven by lower new and existing customer sales in the large case market,
partially offset by higher sales to new and existing customers in the core market. Individual disability sales increased compared
to 2020 due to higher sales to existing customers, partially offset by a decline in sales to new customers. Dental and vision sales
decreased slightly compared to 2020 driven by lower sales to new customers, mostly offset by higher sales to existing customers.
As 2021 progressed we saw a decline in the sales disruption caused by COVID-19, which resulted in an increase in sales during
the latter half of 2021 for certain of our product lines, particularly in the supplemental and voluntary product lines.
70
Goodwill
We had total goodwill of $280.0 million for the Unum US segment at December 31, 2022, none of which is currently believed to
be at risk for future impairment.
Segment Outlook
We remain committed to offering consumers a broad set of financial protection benefit products at the worksite. During 2023,
we will continue to invest in a unique customer experience defined by simplicity, empathy, and deep industry expertise through
the increased utilization of digital capabilities and technology to enhance enrollment, underwriting, the client administration
experience, and claims processing. In addition, we will focus on strategically aligned sales through continuing to enhance the
connectivity, alignment, and support for brokers and technology partners. With respect to smaller employers, we will continue
to provide a comprehensive set of consumer-focused products, enhance our distribution model, and utilize our digital tools to
bring industry leading enrollment capabilities and a fully integrated customer experience. Our differentiated offerings and
market leading leave management services provide substantial growth opportunities, particularly with larger employers, and
stronger persistency in our core products. We believe our active client management, integrated customer experience across our
product lines, and strong risk management, will enable us to continue to grow our market over the long-term.
We anticipate increased adjusted operating income growth in 2023 supported by premium growth and improved claim
experience. We expect strong full year premium income, partially due to favorable, but normalizing, levels of in-force block
growth as a result of wage inflation and an increase in the number of lives covered for our group products, as well as continued
strong sales momentum. While we expect our group life claim experience to continue to improve as impacts from COVID-19
lessen, we may also continue to experience claims volatility, particularly in our group disability and group and voluntary life
products. Furthermore, we could continue to experience increased expenses as we continue to invest in our people and
capabilities, including our leave management services.
The current interest rate environment could continue to positively impact our yields on new investments but could also continue
to create further unrealized losses in our current holdings. Our net investment income may continue to be impacted by volatility
in miscellaneous investment income.
As part of our discipline in pricing and reserving, we continuously monitor emerging claim trends and interest rates. We will
continue to take appropriate pricing actions on new business and renewals that are reflective of the current environment.
We continuously monitor key indicators to assess our risks and adjust our business plans accordingly.
Effective January 1, 2023, we will adopt ASU 2018-12. For further discussion, see “Accounting Developments” contained
herein in this Item 7 and Note 1 of the “Notes to the Consolidated Financial Statements” contained herein in Item 8.
71
Unum International Segment
The Unum International segment is comprised of our operations in both the United Kingdom and Poland. Our Unum UK
products include insurance for group long-term disability, group life, and supplemental lines of business, which includes dental,
individual disability, and critical illness products. Our Unum Poland products include insurance for individual and group life
with accident and health riders. Unum International's products are sold primarily through field sales personnel and independent
brokers and consultants.
Operating Results
Shown below are financial results and key performance indicators for the Unum International segment.
(in millions of dollars, except ratios)
Adjusted Operating Revenue
Premium Income
Unum UK
Group Long-term Disability
Group Life
Supplemental
Unum Poland
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
$
2022
376.9
138.2
114.0
89.7
718.8
170.1
0.9
889.8
564.8
56.3
(12.0)
7.6
146.1
762.8
Year Ended December 31
2021
% Change
% Change
2020
(6.2) % $
23.1
1.2
(0.6)
0.3
28.2
50.0
4.6
1.5
4.1
(6.3)
(5.0)
5.0
2.4
401.9
112.3
112.6
90.2
717.0
132.7
0.6
850.3
556.2
54.1
(12.8)
8.0
139.1
744.6
10.1 % $
3.5
12.8
13.3
9.8
26.9
20.0
12.2
11.0
8.9
5.8
8.1
2.7
9.3
364.9
108.5
99.8
79.6
652.8
104.6
0.5
757.9
500.9
49.7
(12.1)
7.4
135.4
681.3
Adjusted Operating Income
$
127.0
20.2
$
105.7
38.0
$
76.6
Foreign Currency Translation
The functional currencies of Unum UK and Unum Poland are the British pound sterling and Polish zloty, respectively. Premium
income, net investment income, claims, and expenses are received or paid in the functional currency, and we hold functional
currency-denominated assets to support functional currency-denominated policy reserves and liabilities. We translate functional
currency-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 (loss) in our consolidated balance sheets.
Fluctuations in exchange rates impact Unum International's reported financial results and our consolidated financial results. In
periods when the functional currency strengthens relative to the preceding period, translation increases current period results
relative to the prior period. In periods when the functional currency weakens, translation decreases current period results relative
to the prior period.
72
Unum UK Operating Results
Shown below are financial results and key performance indicators for the Unum UK product lines in functional currency.
(in millions of pounds, except ratios)
Adjusted Operating Revenue
Premium Income
Group Long-term Disability
Group Life
Supplemental
Total Premium Income
Net Investment Income
Other Income
Total
2022
£ 304.6
112.3
92.3
509.2
131.9
0.1
641.2
Year Ended December 31
2021
% Change
% Change
2020
4.3 % £ 292.0
81.7
37.5
81.8
12.8
455.5
11.8
91.0
44.9
0.1
—
546.6
17.3
2.7 % £ 284.2
84.6
(3.4)
77.7
5.3
446.5
2.0
76.0
19.7
0.1
—
522.6
4.6
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits
Commissions
Deferral of Acquisition Costs
Amortization of Deferred Acquisition Costs
Other Expenses
Total
413.2
31.8
(4.2)
5.0
95.6
541.4
13.9
10.8
(2.3)
(2.0)
16.9
14.2
362.8
28.7
(4.3)
5.1
81.8
474.1
2.9
2.1
2.4
(3.8)
(5.4)
1.3
352.5
28.1
(4.2)
5.3
86.5
468.2
Adjusted Operating Income
£
99.8
37.7
£
72.5
33.3
£
54.4
Weighted Average Pound/Dollar Exchange Rate
1.222
1.377
1.287
Operating Ratios (% of Premium Income):
Benefit Ratio
Other Expense Ratio
Adjusted Operating Income Ratio
Persistency:
Group Long-term Disability
Group Life
Supplemental
81.1 %
18.8 %
19.6 %
85.1 %
87.9 %
92.8 %
79.6 %
18.0 %
15.9 %
89.3 %
86.5 %
90.9 %
78.9 %
19.4 %
12.2 %
88.2 %
81.8 %
90.7 %
Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
Premium income was higher compared to 2021 primarily due to in-force block growth and sales growth in the group life product
line.
Net investment income was higher compared to 2021 due to higher investment income from inflation index-linked bonds. Our
investments in inflation index-linked bonds support the claim reserves associated with certain group policies that provide for
inflation-linked increases in benefits. The change in net investment income attributable to these inflation index-linked bonds is
partially offset by a change in the reserves for future claim payments related to the inflation index-linked group long-term
disability and group life policies.
73
Benefits experience was unfavorable relative to 2021 due to higher inflation-linked experience for our group life and group long-
term disability products and higher claims incidence in the supplemental product line and in the group long-term disability
product line, partially offset by lower mortality in the group life product line.
Commissions increased relative to 2021 due primarily to in-force block growth. The deferral and amortization of acquisition
costs were generally consistent relative to 2021. The other expense ratio was higher relative to 2021 due to an increase in
employee-related costs and operational investments in the business.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Premium income was higher compared to 2020 primarily due to growth in the in-force blocks resulting from the impact of rate
increases in the group long-term disability product line and higher overall persistency.
Net investment income was higher compared to 2020 due to higher investment income from inflation index-linked bonds and a
higher level of invested assets, partially offset by a lower yield on fixed-rate bonds.
Benefits experience was unfavorable relative to 2020 due to higher inflation-linked experience in benefits, higher claims
incidence in the group life product line and lower claim resolutions in the group long-term disability product line that resulted
from continued disruptions to health services caused by COVID-19, partially offset by lower claims incidence in the group long-
term disability product line.
Commissions and the deferral of acquisition costs were slightly higher relative to 2020 due to higher sales and in-force block
growth. The amortization of acquisition costs was slightly lower than 2020 due to a decline in the level of the deferred asset.
The other expense ratio improved relative to 2020 due to certain expenses in 2020 related to COVID-19 that did not recur and
our continued focus on expense management.
74
Year Ended December 31
2021
% Change
% Change
4.6 % $
77.3
0.6
10.6
26.4
$
41.4
31.3
17.0
16.1
105.8
9.8 % $
51.9
(10.1)
21.1
16.9
$
2.9 % $
79.8
35.9
0.6
10.6
26.4
$
41.5
31.2
72.7
17.0
16.1
105.8
15.0 % £
99.1
9.8
43.5
£
13.9 % £
101.3
51.3
9.8
43.5
£
30.0
22.8
12.3
65.1
30.2
22.6
52.8
12.3
65.1
14.6 % $
41.2
24.7
(10.1)
21.1
16.9
$
1.7 % £
41.6
(17.4)
7.6
£
6.7 % £
30.6
15.8
(17.4)
7.6
£
2020
37.7
20.6
18.9
13.3
90.5
36.2
22.1
58.3
18.9
13.3
90.5
29.5
16.1
14.9
60.5
28.3
17.3
45.6
14.9
60.5
Sales
(in millions of dollars and pounds)
Unum International Sales by Product
Unum UK
Group Long-term Disability
Group Life
Supplemental
Unum Poland
Total Sales
Unum International Sales by Market Sector
Unum UK
Group Long-term Disability and Group Life
Core Market (< 500 employees)
Large Case Market
Subtotal
Supplemental
Unum Poland
Total Sales
Unum UK Sales by Product
Group Long-term Disability
Group Life
Supplemental
Total Sales
Unum UK Sales by Market Sector
Group Long-term Disability and Group Life
Core Market (< 500 employees)
Large Case Market
Subtotal
Supplemental
Total Sales
2022
43.3
55.5
17.1
17.8
133.7
42.7
56.1
98.8
17.1
17.8
133.7
34.5
45.4
13.5
93.4
34.4
45.5
79.9
13.5
93.4
$
$
$
$
£
£
£
£
75
The following discussion of sales results relates only to our Unum UK product lines and is based on functional currency.
Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
Group long-term disability sales increased compared to 2021 driven by higher sales to new customers in the large case market
and existing customers in the core market, which we define as employee groups with fewer than 500 employees, partially offset
by lower sales to new customers in the core market.
Group life sales increased compared to 2021 driven primarily by higher sales to new customers in both the large case and core
markets.
Supplemental sales increased compared to 2021 due primarily to higher sales in the dental product line, partially offset by lower
sales in the group critical illness product line.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Group long-term disability sales were generally consistent with 2020, with an increase in sales to existing customers in the large
case market mostly offset by lower sales to new customers in the large case market and lower sales to existing customers in the
core market.
Group life sales increased in 2021 compared to 2020 due to an increase in sales to new customers in both our core and large case
markets and higher sales to existing customers in the large case market, partially offset by lower sales to existing customers in
our core market.
Supplemental sales were lower in 2021 compared to 2020 due primarily to a decline in the group critical illness product, partially
offset by an increase in dental product sales.
Goodwill
We had total goodwill of $39.9 million for the Unum International segment at December 31, 2022, of which, $35.6 million is
attributed to the Unum UK reporting unit and $4.3 million is attributed to the Unum Poland reporting unit. Fair value of our
reporting units is estimated using a combination of the income and market approaches and the key assumptions used are
projected earnings and discount rate. To the extent that the future profitability of these reporting units deteriorates from current
assumptions, the goodwill related to the reporting units could be at risk for impairment.
Segment Outlook
We are committed to driving growth in the Unum International segment and will build on the capabilities that we believe will
generate growth and profitability in our businesses over the long term. In 2023, we will focus on scaling our business and
broadening our international portfolio. For our Unum UK line of business, achieving growth remains a priority, and we will
continue to focus on delivering a best in class health and wellbeing service to improve retention of our key customers and drive
growth in small case business. We will also accelerate premium growth by focusing on both the broker experience and customer
engagement, while maintaining our disciplined approach to pricing. Within our Unum Poland line of business, we will drive
growth by expanding our distribution and the new direct channel. We will also continue to invest in digital capabilities,
technology, and product enhancements which we believe will drive sustainable growth over the long term.
In 2023, we expect sales and premium growth to continue, alongside improving claim experience. We recognize that 2022
earnings benefited from inflation linked income that we expect to trend towards a more normalized level in 2023 and could
pressure earnings growth. As inflation begins to moderate, we will likely continue to experience higher net investment income
and fluctuations in our benefit ratio. We continuously monitor key indicators to assess our risks and adjust our business plans
accordingly to respond to external challenges.
Effective January 1, 2023, we will adopt ASU 2018-12. For further discussion, see “Accounting Developments” contained
herein in this Item 7 and Note 1 of the “Notes to the Consolidated Financial Statements” contained herein in Item 8.
76
Colonial Life Segment
The Colonial Life segment includes insurance for accident, sickness, and disability products, which includes our dental and
vision products, life products, and cancer and critical illness products issued primarily by Colonial Life & Accident Insurance
Company and marketed to employees, on both a group and an individual basis, at the workplace through an independent
contractor agent 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)
Adjusted Operating Revenue
Premium Income
Accident, Sickness, and Disability
Life
Cancer and Critical Illness
Total Premium Income
Net Investment Income
Other Income
Total
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits
Commissions
Deferral of Acquisition Costs
Amortization of Deferred Acquisition Costs
Other Expenses
Total
2022
$ 948.9
401.1
352.0
1,702.0
152.7
1.1
1,855.8
803.1
340.0
(271.8)
288.5
321.4
1,481.2
Year Ended December 31
2021
% Change
% Change
2020
(0.5) % $ 953.3
384.7
4.3
352.2
(0.1)
1,690.2
0.7
172.0
(11.2)
1.0
10.0
1,863.2
(0.4)
(2.2) % $ 975.1
376.4
2.2
360.5
(2.3)
1,712.0
(1.3)
155.7
10.5
1.1
(9.1)
1,868.8
(0.3)
(11.8)
6.2
7.6
11.3
8.2
(3.4)
910.4
320.1
(252.6)
259.1
297.0
1,534.0
0.4
(4.2)
(7.3)
0.5
(3.4)
—
906.5
334.3
(272.6)
257.7
307.5
1,533.4
Adjusted Operating Income
$ 374.6
13.8
$ 329.2
(1.8)
$ 335.4
Operating Ratios (% of Premium Income):
Benefit Ratio
Other Expense Ratio
Adjusted Operating Income Ratio
Persistency:
Accident, Sickness, and Disability
Life
Cancer and Critical Illness
47.2 %
18.9 %
22.0 %
73.3 %
84.5 %
82.3 %
53.9 %
17.6 %
19.5 %
75.4 %
85.5 %
82.4 %
52.9 %
18.0 %
19.6 %
74.3 %
83.7 %
81.8 %
77
Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
Premium income was favorable compared to 2021 due to higher prior period sales, particularly in the life product line, partially
offset by lower overall persistency. Net investment income was lower in 2022 compared to 2021 due to lower miscellaneous
investment income and a decline in the yield on invested assets, partially offset by an increase in the level of invested assets.
Benefits experience was favorable relative to 2021 across all product lines, including the life product line as a result of lessening
impacts of COVID-19 on our insured population.
Commissions and the deferral of acquisition costs were higher compared to 2021 due to higher prior period sales. The
amortization of deferred acquisition costs was higher compared to 2021 due to a higher level of policy terminations primarily in
the accident, sickness, and disability product line. The other expense ratio was higher relative to 2021 due primarily to an
increase in operational investments in our business, an increase in employee-related costs, and a decrease in the allowance for
expected credit losses during 2021 that did not recur in 2022.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Premium income was lower compared to 2020 due to lower prior period sales, partially offset by favorable persistency. Net
investment income was higher in 2021 compared to 2020 due to higher miscellaneous investment income and an increase in the
level of invested assets, partially offset by a decline in the yield on invested assets.
Benefits experience was unfavorable relative to 2020 due primarily to unfavorable experience in the life product line resulting
from the impacts of COVID-19.
Commissions and the deferral of acquisition costs were lower compared to 2020 due to lower prior period sales. The
amortization of deferred acquisition costs was generally consistent with 2020. The other expense ratio improved relative to 2020
due primarily to a decrease in the allowance for expected credit losses and our continued focus on expense management and
operating efficiencies.
78
Sales
(in millions of dollars)
Sales by Product
Accident, Sickness, and Disability
Life
Cancer and Critical Illness
Total Sales
Sales by Market Sector
Commercial
Core Market (< 1,000 employees)
Large Case Market
Subtotal
Public Sector
Total Sales
2022
310.6
121.5
76.0
508.1
332.4
58.1
390.5
117.6
508.1
$
$
$
$
Year Ended December 31
2021
% Change
% Change
2020
4.3 % $
9.5
7.2
5.9
$
297.9
111.0
70.9
479.8
13.9 % $
25.0
12.9
16.1
$
261.5
88.8
62.8
413.1
6.1 % $
(15.2)
2.3
19.9
5.9
$
313.2
68.5
381.7
98.1
479.8
17.7 % $
19.3
18.0
9.6
16.1
$
266.2
57.4
323.6
89.5
413.1
Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
During 2022, we have seen an increase in sales for each of our product lines relative to 2021. Commercial market sales
increased compared to 2021 driven by higher sales to existing customers in the core market, which we define as accounts with
fewer than 1,000 employees, partially offset by lower sales to new and existing customers in the large case market. Public sector
market sales increased compared to 2021 due to higher sales to both new and existing customers. The number of new accounts
decreased 5.2 percent and average new case size increased 4.1 percent in 2022 compared to 2021.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
During 2021, we saw an increase in sales for each of our product lines and market sectors relative to 2020 due to a decline in
disruption to our sales processes caused by COVID-19. The number of new accounts increased 13.0 percent and average new
case size decreased 3.2 percent in 2021 compared to 2020.
Goodwill
We had goodwill of $27.7 million at December 31, 2022, none of which is currently believed to be at risk for future impairment.
Segment Outlook
We remain committed to providing employees and their families with simple, modern, and personal benefit solutions. During
2023, we will continue to utilize our strong distribution system of independent agents, benefit counselors and broker
partnerships. We will also continue to invest in new solutions and digital capabilities to expand our reach and effectiveness,
driving growth and improving productivity while enhancing the customer experience. In 2023, we will continue to bring an
enhanced engagement and enrollment platform to market enabling deeper connections with employees through the enrollment
process as well as maintaining stronger relationships throughout the customer lifecycle. We believe our distribution system,
customer service capabilities, digital and virtual tools, and ability to serve all market sizes position us well for future growth.
In 2023, we expect positive adjusted operating income growth with strong sales growth and full year premium income growing
from the prior year, but at a rate that is below pre-pandemic levels. We expect stable claim experience in 2023, but could
continue to experience some level of claims volatility. While we believe our underlying profitability will remain strong, current
economic conditions and increasing competition in the voluntary workplace market are risks to achievement of our business
plans. We continuously monitor key indicators to assess our risks and adjust our business plans accordingly.
Effective January 1, 2023, we will adopt ASU 2018-12. For further discussion, see “Accounting Developments” contained
herein in this Item 7 and Note 1 of the “Notes to the Consolidated Financial Statements” contained herein in Item 8.
79
Closed Block Segment
The Closed Block segment consists of group and individual long-term care and other insurance products no longer actively
marketed. We discontinued offering individual long-term care in 2009 and group long-term care in 2012. Other insurance
products include individual disability, group pension, individual life and corporate-owned life insurance, reinsurance pools and
management operations, and other miscellaneous product lines.
80
Operating Results
Shown below are financial results and key performance indicators for the Closed Block segment.
(in millions of dollars, except ratios)
Adjusted Operating Revenue
Premium Income
Long-term Care
All Other
Total Premium Income
Net Investment Income
Other Income
Total
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits
Commissions
Interest and Debt Expense
Other Expenses
Total
Income (Loss) Before Income Tax and Net Investment
Gains and Losses
Long-term Care Reserve Increase
Individual Disability Reserve Increase
Group Pension Reserve Increase
Impacts from Closed Block Individual Disability
Reinsurance Transaction
Amortization of the Cost of Reinsurance
Adjusted Operating Income
Interest Adjusted Loss Ratio:
Long-term Care1
Operating Ratios (% of Premium Income):
Other Expense Ratio2
Income (Loss) Ratio
Adjusted Operating Income Ratio
Persistency:
Long-term Care
2022
$ 697.4
246.9
944.3
1,070.6
58.0
2,072.9
1,627.3
75.7
—
185.8
1,888.8
184.1
—
—
—
—
63.8
$ 247.9
Year Ended December 31
2021
% Change
% Change
2020
(1.0) % $ 704.3
291.5
(15.3)
995.8
(5.2)
1,159.0
(7.6)
65.1
(10.9)
2,219.9
(6.6)
5.6 % $ 666.9
327.5
994.4
1,370.3
66.6
2,431.3
(11.0)
0.1
(15.4)
(2.3)
(8.7)
(9.3)
(6.0)
—
(8.7)
(9.1)
1,793.2
80.5
—
203.5
2,077.2
(47.7)
2.7
N.M.
28.2
(43.4)
3,426.8
78.4
3.1
158.7
3,667.0
29.0
N.M.
N.M.
N.M.
N.M.
(19.3)
(37.2)
142.7
2.1
6.4
25.1
139.3
79.1
$ 394.7
(111.5)
(98.6)
N.M.
43.4
(1,235.7)
151.5
—
17.5
(89.3)
N.M.
63.5
1,305.5
2.6
$ 241.4
82.0 %
77.3 %
68.9 %
12.9 %
19.5 %
26.3 %
11.9 %
14.3 %
39.6 %
13.6 %
(124.3) %
24.3 %
95.7 %
95.6 %
94.8 %
1Excludes the $2.1 million reserve increase for the year ended 2021 related to the assumption update that occurred during the
third quarter of 2021. Excludes the $151.5 million reserve increase for the year ended 2020 that occurred during the fourth
quarter of 2020.
2Excludes amortization of the cost of reinsurance from the years ended 2022, 2021, and 2020. Also excludes $6.2 million and
$21.0 million of transaction costs from 2021 and 2020, respectively, related to the two phases of the Closed Block individual
disability reinsurance transaction that occurred during the first quarter of 2021 and the fourth quarter of 2020.
N.M. = not a meaningful percentage
81
Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
Premium income for long-term care decreased compared to 2021 due to policy terminations, partially offset by rate increases.
We continue to file requests with various state insurance departments for premium rate increases on certain of our individual and
group long-term care policies which reflect assumptions as of the date of filings. In states for which a rate increase is submitted
and approved, we routinely provide customers options for coverage changes or other approaches that might fit their current
financial and insurance needs. Premium income for our "All Other" product line continues to decline as expected due to policy
terminations and maturities.
Net investment income was lower relative to 2021 primarily due to lower miscellaneous investment income, partially related to
smaller increases in the NAV on our private equity partnerships, and a decline in the yield on invested assets, partially offset by
an increase in the level of invested assets.
Other income primarily includes the underlying results and associated net investment income of certain assumed blocks of
reinsured business.
The interest adjusted loss ratio for long-term care, excluding the reserve increase related to the assumption update in the third
quarter of 2021, was less favorable compared to 2021 driven primarily by higher claim incidence. Also impacting benefits
experience for the Closed Block segment in 2021 were the reserve recognition impacts from the second phase of the individual
disability reinsurance transaction and the previously discussed reserve increases to group pension and individual disability within
our "All Other" product line. See "Executive Summary” contained herein in Item 7 and Note 6 of the "Notes to Consolidated
Financial Statements" contained herein in Item 8 for further discussion on the reserve assumption updates.
We no longer have interest and debt expense due to the December 2020 redemption of the senior secured notes issued by
Northwind Holdings, LLC (Northwind Holdings).
The other expense ratio, excluding certain transaction costs incurred and the amortization of cost of reinsurance related to the
previously discussed reinsurance transaction, was higher than 2021 due primarily to a decline in the expense allowance related to
ceded business within our "All Other" product line. See "Executive Summary" contained herein in Item 7 for discussion on the
ceded block of individual disability business.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Premium income for long-term care increased compared to 2020 due to rate increases, partially offset by policy terminations.
Premium income for our "All Other" product line continued to decline as expected due to policy terminations and maturities.
Net investment income was lower relative to 2020 primarily due to a decrease in the level of invested assets supporting
individual disability within our "All Other" product line resulting from the reinsurance transaction and a decline in the yield on
invested assets, partially offset by higher miscellaneous investment income, primarily related to increases in the NAV on our
private equity partnerships.
The interest adjusted loss ratio for long-term care, excluding the reserve increases as previously discussed, was less favorable
compared to 2020 driven primarily by lower claimant mortality and higher submitted claims, but was favorable compared to our
long-term expectations. Also impacting benefits experience for the Closed Block segment in 2021 and 2020 were the reserve
recognition impacts from the two phases of the individual disability reinsurance transaction and the previously discussed reserve
increases to group pension and individual disability within our "All Other" product line. See "Executive Summary” contained
herein in Item 7 and Note 6 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion
on the reserve assumption updates and the individual disability reinsurance transaction.
The other expense ratio, excluding certain transaction costs incurred and the amortization of cost of reinsurance related to the
previously discussed reinsurance transaction, was lower than 2020 driven by expense allowances related to the reinsurance
transaction and our continued focus on expense management and operating efficiencies.
Segment Outlook
We will continue to execute on our well-defined strategy of implementing long-term care premium rate increases, efficient
capital management, improved financial analysis, and operational effectiveness. We will continue to explore structural options
to enhance financial flexibility. Despite continued anticipated premium rate increases in our long-term care business, we expect
overall premium income and adjusted operating revenue to decline over time as these closed blocks of business wind down. We
82
will likely experience volatility in net investment income due to fluctuations of miscellaneous investment income, driven by
bond calls and the increased allocation towards alternative assets, primarily private equity partnership investments, in the long-
term care product line portfolio. We record changes in our share of the net asset value (NAV) of the partnerships in net
investment income. We receive financial information related to our investments in partnerships and generally record investment
income on a one-quarter lag in accordance with our accounting policy. As these net asset values are volatile and can fluctuate
materially with changes in market economic conditions, there may possibly be significant movements up or down in future
periods as conditions change. We continuously monitor key indicators to assess our risks and adjust our business plans, including
utilization of derivative financial instruments to manage interest rate risk.
Profitability of our long-tailed products is affected by claims experience related to mortality and morbidity, resolutions,
investment returns, premium rate increases, and persistency. We believe that the interest adjusted loss ratio for long-term care
will be relatively flat over the long term, but may continue to experience quarterly volatility, particularly in the near term as our
claim block matures and as we continue the implementation of premium rate increases. Specific to our long-term care line of
business, we expect the long term interest adjusted loss ratio to remain consistent with prior guidance, which was in the 85 to 90
percent range with some quarterly volatility. Claim resolution rates, which measure the resolution of claims from recovery,
deaths, settlements, and benefit expirations, are very sensitive to operational and external factors and can be volatile. 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 that variability in any of our
reserve assumptions, including, but not limited to, mortality, morbidity, resolutions, premium rate increases, benefit change
elections, and persistency, could result in a material impact to our reserves.
As a result of the execution of the reinsurance transaction related to our Closed Block individual disability line of business, we
have fully ceded a significant portion of this business. We expect that earnings will continue to be impacted by the amortization
of the cost of reinsurance. However, we expect the amortization of the cost of reinsurance to decrease as a result of a lower cost
of reinsurance due to our adoption of ASU 2018-12 which is effective January 1, 2023. The cost of reinsurance will continue to
be amortized over a period of approximately 25 years, on a declining trajectory generally consistent with the expected run-off
pattern of the ceded reserves.
For further discussion of ASU 2018-12, see “Accounting Developments” contained herein in this Item 7 and Note 1 of the
“Notes to the Consolidated Financial Statements” contained herein in Item 8.
83
Corporate Segment
The Corporate 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 expenses not allocated to a line
of business.
Operating Results
(in millions of dollars)
Adjusted Operating Revenue
Net Investment Income
Other Income
Total
2022
Year Ended December 31
2021
% Change
% Change
2020
$
$
52.5
4.8
57.3
88.2%
(22.6)
68.0
27.9
6.2
34.1
184.7% $
N.M.
N.M.
9.8
1.1
10.9
Interest, Debt, and Other Expenses
221.6
(27.4)
305.3
23.3
247.7
Loss Before Income Tax and Net Investment Gains and
Losses
Impairment Loss on Internal-Use Software
Cost Related to Early Retirement of Debt
Impairment Loss on ROU Asset
Cost Related to Organizational Design Update
Adjusted Operating Loss
(164.3)
—
—
—
—
(164.3)
$
39.4
N.M.
N.M.
N.M.
—
7.6
(271.2)
12.1
67.3
13.9
—
(177.9)
(14.5)
N.M.
N.M.
9.4
N.M.
11.4
$
(236.8)
—
—
12.7
23.3
(200.8)
$
N.M. = not a meaningful percentage
Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
Adjusted operating loss, which excludes the items listed above, decreased in 2022 relative to 2021, due primarily to higher net
investment income, which resulted from an increase in the yield on invested assets and lower pension expenses, partially offset
by an increase in employee-related costs and an increase in interest and debt expenses.
See "Executive Summary” contained herein in this Item 7 and Notes 8, 13, and 15 of the "Notes to Consolidated Financial
Statements" contained herein in Item 8 for further discussion on the impairment loss on internal-use software, costs related to the
early retirement of debt, the ROU asset impairments, and the costs related to the organizational design update.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Adjusted operating loss, which excludes the items listed above, decreased in 2021 relative to 2020, due primarily to higher net
investment income, which resulted from an increase in the yield on invested assets.
Segment Outlook
We expect to continue to generate excess capital on an annual basis through the statutory earnings in our insurance subsidiaries
and believe we are well positioned with flexibility to preserve our capital strength while also returning capital to our
shareholders. We may experience volatility in net investment income based on both the composition and level of invested assets
that we allocate to our products from period to period.
84
Investments
Overview
Our investment portfolio is well diversified by type of investment and industry sector. 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 believe our emphasis on risk management in our investment portfolio has
positioned us well and generally reduced the volatility in our results.
We and our insurance subsidiaries each have a formal investment policy that includes overall quality and diversification
objectives and establishes asset class, investment rating, single issuer, and derivative limits for the entity. We also have formal
enterprise investment guidelines that set forth aggregate limits by asset class and investment rating across all entities. The
majority of our investments are in investment-grade publicly traded securities. This ensures the desired liquidity and preserves
the capital value of our portfolios. Due to the long-term nature of our insurance liabilities, we are also able to invest in less
liquid investments to obtain additional returns within the limits of our investment policy. The asset mix guidelines and limits are
reviewed and approved by the risk and finance committee of Unum Group's board of directors as they relate to Unum Group and
the enterprise as a whole, and by the boards of directors of our insurance subsidiaries as they relate to the respective entities. We
review our policies and guidelines annually, or more frequently if deemed necessary, and recommend adjustments as
appropriate.
See "Critical Accounting Estimates" contained herein in this Item 7 for further discussion of our valuation of investments.
Closed Block Individual Disability Reinsurance Transaction
In 2020, as part of the first phase of the Closed Block individual disability reinsurance transaction, we transferred fixed maturity
securities of $4,686.8 million on an amortized cost basis and $5,958.4 million on a fair value basis, and we recorded a total
realized investment gain from the transfer of these securities, including a related net gain from cash flow hedges of $1,302.3
million. As part of the second phase of the Closed Block individual disability reinsurance transaction entered into in March 2021
with Commonwealth, we transferred fixed maturity securities of $226.8 million on an amortized cost basis and $293.7 million on
a fair value basis, and recorded a total realized investment gain from the transfer of these securities, including a related net gain
from cash flow hedges, of $67.6 million. Although we transferred a significant portion of our fixed maturity security portfolio as
part of this transaction, the overall credit profile of our remaining portfolio has not changed. See "Executive Summary"
contained herein in this Item 7 for further information on the reinsurance transaction.
85
Fixed Maturity Securities
The fair values and associated unrealized gains and losses of our fixed maturity securities portfolio, by industry classification,
are as follows:
Fixed Maturity Securities - By Industry Classification
As of December 31, 2022
(in millions of dollars)
Classification
Fair Value
Net
Unrealized
Gain (Loss)
Fair Value
with Gross
Unrealized
Loss
Gross
Unrealized
Loss
Fair Value
with Gross
Unrealized
Gain
Gross
Unrealized
Gain
Basic Industry
Capital Goods
Communications
Consumer Cyclical
Consumer Non-Cyclical
Energy
Financial Institutions
Mortgage/Asset-Backed
Sovereigns
Technology
Transportation
U.S. Government Agencies and
Municipalities
Public Utilities
Total
$
2,554.5 $
3,193.6
2,182.4
1,402.6
5,763.3
2,770.0
3,473.9
573.3
827.1
1,567.5
1,620.3
(212.6) $
(224.2)
(156.6)
(127.2)
(537.5)
(72.1)
(443.7)
(18.8)
(81.0)
(177.8)
(164.5)
1,975.5 $
2,227.7
1,365.8
1,146.2
4,097.5
1,467.1
3,075.4
386.7
337.0
1,438.5
1,269.5
245.8 $
294.8
236.5
147.3
654.6
155.0
464.3
27.0
115.9
186.9
183.1
579.0 $
965.9
816.6
256.4
1,665.8
1,302.9
398.5
186.6
490.1
129.0
350.8
3,955.4
4,956.9
34,840.8 $
(554.4)
(214.0)
(2,984.4) $
2,525.5
2,497.4
23,809.8 $
661.8
355.0
3,728.0 $
1,429.9
2,459.5
11,031.0 $
$
33.2
70.6
79.9
20.1
117.1
82.9
20.6
8.2
34.9
9.1
18.6
107.4
141.0
743.6
The following two tables show the length of time our investment-grade and below-investment-grade fixed maturity securities
portfolios had been in a gross unrealized loss position as of December 31, 2022 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, 2022. The increase in the unrealized loss on fixed maturity
securities during 2022 was due primarily to an increase in U.S. Treasury rates.
86
Unrealized Loss on Investment-Grade Fixed Maturity Securities
Length of Time in Unrealized Loss Position
(in millions of dollars)
Fair Value < 100% >= 70% of Amortized Cost
December 31 September 30
June 30
March 31
2022
2021
December 31
<= 90 days
> 90 <= 180 days
> 180 <= 270 days
> 270 days <= 1 year
> 1 year <= 2 years
> 2 years <= 3 years
Sub-total
$
63.0 $
316.6
614.5
1,126.6
484.0
19.2
2,623.9
523.7 $
879.0
945.4
218.6
195.0
2.9
2,764.6
514.7 $
1,177.1
268.9
147.1
66.5
6.5
2,180.8
491.6 $
199.5
109.1
1.1
67.2
1.7
870.2
Fair Value < 70% >= 40% of Amortized Cost
<= 90 days
> 90 <= 180 days
> 180 <= 270 days
> 270 days <= 1 year
> 1 year <= 2 years
> 2 years <= 3 years
Sub-total
10.6
—
28.5
320.2
532.7
29.6
921.6
—
22.3
564.2
427.4
176.5
18.5
1,208.9
10.3
37.8
80.6
39.4
39.8
—
207.9
—
3.1
3.7
—
1.9
—
8.7
29.9
29.4
0.7
21.8
5.1
—
86.9
—
—
—
1.5
—
—
1.5
Total
$
3,545.5 $
3,973.5 $
2,388.7 $
878.9 $
88.4
87
Unrealized Loss on Below-Investment-Grade Fixed Maturity Securities
Length of Time in Unrealized Loss Position
(in millions of dollars)
Fair Value < 100% >= 70% of Amortized Cost
December 31 September 30
June 30
March 31
2022
2021
December 31
<= 90 days
> 90 <= 180 days
> 180 <= 270 days
> 270 days <= 1 year
> 1 year <= 2 years
> 2 years <= 3 years
> 3 years
Sub-total
$
1.8 $
12.6
39.1
84.7
17.5
0.5
2.7
158.9
27.1 $
58.5
103.8
15.2
3.8
0.7
3.4
212.5
73.4 $
92.8
13.5
3.3
0.2
1.4
2.9
187.5
24.8 $
5.9
1.9
—
1.8
3.7
7.9
46.0
Fair Value < 70% >= 40% of Amortized Cost
> 90 <= 180 days
> 180 <= 270 days
> 270 days <= 1 year
> 1 year <= 2 years
> 2 years <= 3 years
> 3 years
Sub-total
—
—
7.6
1.3
5.1
9.6
23.6
—
5.0
—
—
6.2
9.9
21.1
6.1
3.4
1.4
—
5.4
9.1
25.4
—
—
—
—
—
—
—
0.8
0.3
—
2.2
2.5
0.3
5.6
11.7
—
—
—
—
—
—
—
Total
$
182.5 $
233.6 $
212.9 $
46.0 $
11.7
At December 31, 2022, we held 71 investment-grade fixed maturity securities with a gross unrealized loss of $10.0 million or
greater as shown in the chart below.
88
Gross Unrealized Losses $10 Million or Greater on Investment-Grade Fixed Maturity Securities
As of December 31, 2022
(in millions of dollars)
Classification
Basic Industry
Capital Goods
Communications
Consumer Cyclical
Consumer Non-Cyclical
Energy
Financial Institutions
Mortgage/Asset-Backed
Sovereigns
Technology
Transportation
U.S. Government Agencies and Municipalities
Public Utilities
Total
Fair Value
$
Gross
Unrealized
Loss
Number of
Issuers
231.2 $
273.5
448.9
237.7
816.2
121.9
858.5
360.8
310.1
350.6
287.5
155.6
431.9
4,884.4 $
(55.5)
(62.7)
(104.9)
(54.6)
(162.9)
(27.9)
(140.0)
(26.1)
(104.6)
(75.8)
(62.2)
(35.3)
(100.4)
(1,012.9)
4
6
8
4
13
2
10
1
2
6
5
3
7
71
$
At December 31, 2022, we held one below investment-grade fixed maturity security with a gross unrealized loss greater than
$10.0 million. The security is a pharmaceutical company and had a fair value of $37.7 million and a gross unrealized loss of
$12.4 million.
The 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. Below-investment-grade fixed
maturity securities are generally more likely to develop credit concerns than investment-grade securities. At December 31, 2022,
the unrealized losses in our below-investment-grade fixed maturity securities were generally due to credit spreads in certain
industries or sectors and, to a lesser extent, credit concerns related to specific securities. For each specific security in an
unrealized loss position, we believe that there are positive factors which mitigate credit concerns and that the securities for which
we have not recorded a credit loss will recover in value. We have the ability and intent to continue to hold these securities to
recovery of amortized cost and believe that no credit losses have occurred.
During the third quarter of 2022, we recognized a realized loss of $12.6 million on the sale of securities of a pharmaceutical
company that was impacted by an adverse ruling surrounding a patent held for its largest drug. We had no other individual
investment losses of $10.0 million or greater from credit losses or sales of fixed maturity securities during the years ended
December 31, 2022 or 2021.
During the first quarter of 2020, we recognized the following credit losses greater than $10 million:
•
•
•
$20.8 million on fixed maturity securities issued by an oil and gas producer. The profitability of the company was
impacted by the decline in oil prices which, given the environment at the time, may have made near term debt
maturities difficult to refinance. We changed our intent to hold this security in the second quarter of 2020 and
recognized a $1.4 million loss on the sale of the security in addition to the credit loss previously recorded.
$17.1 million on fixed maturity securities issued by an oil and gas producer. The profitability of the company was
impacted by the decline in oil prices and the company had a high level of debt. The company filed for bankruptcy as
expected in early April 2020. We changed our intent to hold this security in the third quarter of 2020 and recognized a
$1.0 million loss on the sale of the security in addition to the credit loss previously recorded.
$10.2 million on fixed maturity securities issued by a paper company whose sales of lumber and other products were
impacted by the slowdown in the economy. As a result of an improvement in lumber and other products, during the
89
fourth quarter of 2020, we reversed the remainder of the allowance for credit losses that we had recognized in the
previous quarters of 2020.
During the remainder of 2020, we did not experience any credit losses exceeding $10 million. We had no individual net
investment losses of $10.0 million or greater from sales of fixed maturity securities in 2020.
As of December 31, 2022, the amortized cost net of allowance for credit losses and fair value of our below-investment-grade
fixed maturity securities was $2,163.3 million and $1,989.8 million, respectively, and our below-investment-grade fixed maturity
securities as a percentage of our total investment portfolio decreased from 5.8 percent at December 31, 2021 to 4.6 percent at
December 31, 2022 on a fair value basis. Below-investment-grade securities are inherently riskier than investment-grade
securities 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 problems resulting from 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.
Fixed Maturity Securities - Foreign Exposure
Our investments in issuers in foreign countries are chosen for specific portfolio management purposes, including asset and
liability management and portfolio diversification across geographic lines and sectors to minimize non-market risks. In our
approach to investing in fixed maturity securities, specific investments within foreign countries and industry sectors are
evaluated for their market position and specific strengths and potential weaknesses. For each security, we consider the political,
legal, and financial environment of the sovereign entity in which an issuer is domiciled and operates. The country of domicile is
based on consideration of the issuer's headquarters, in addition to location of the assets and the country in which the majority of
sales and earnings are derived. We do not have exposure to foreign currency risk, as the cash flows from these investments are
either denominated in currencies or hedged into currencies to match the related liabilities. We continually evaluate our foreign
investment risk exposure.
Mortgage Loans
The carrying value of our mortgage loan portfolio was $2,435.4 million and $2,560.4 million at December 31, 2022 and 2021,
respectively. Our investments in mortgage loans are carried at amortized cost less an allowance for credit losses which was $9.3
million and $8.3 million at December 31, 2022 and 2021, respectively. Our mortgage loan portfolio is comprised entirely of
commercial mortgage loans. Our mortgage loan portfolio is well diversified geographically and among property types. Due to
conservative underwriting, the incidence of problem mortgage loans and foreclosure activity continues to be low. We held no
impaired mortgage loans at December 31, 2022 or 2021. See Notes 1 and 3 in the "Notes to Consolidated Financial Statements"
contained herein in Item 8 for further discussion of our mortgage loan portfolio and the allowance for expected credit losses.
Private Equity Partnerships
The carrying value of our investments in private equity partnerships was $1,194.3 million and $978.6 million at December 31,
2022 and 2021, respectively. These partnerships are passive in nature and represent funds that are primarily invested in private
credit, private equity, and real assets. The carrying value of the partnerships is based on our share of the partnership's NAV and
changes in the carrying value are recorded as a component of net investment income. We receive financial information related to
our investments in partnerships and generally record investment income on a one-quarter lag in accordance with our accounting
policy. We recorded net investment income totaling $110.1 million, $165.4 million, and $19.8 million for the years ended
December 31, 2022, 2021, and 2020, respectively. The majority of our investments in partnerships are not redeemable.
Distributions received from the funds arise from income generated by the underlying investments as well as the liquidation of the
underlying investments. There is generally not a public market for these investments. We had $776.9 million of commitments
for additional investments in the partnerships at December 31, 2022 which may or may not be funded. See Note 2 in the "Notes
to Consolidated Financial Statements" contained herein in Item 8 for further discussion of our private equity partnerships.
90
Derivative Financial Instruments
We use derivative financial instruments primarily to manage reinvestment, duration, foreign currency, credit, and equity risks.
Historically, we have utilized current and forward-starting interest rate swaps, options on forward-starting interest rate swaps and
U.S. Treasury rates, current and forward-starting currency swaps, forward treasury locks, currency forward contracts, forward
contracts on specific fixed income securities, credit default swaps, and total return swaps. During 2022, we entered into $779.0
million of notional forward U.S. Treasury interest rate locks in our long-term care product line to manage our reinvestment risk.
Credit exposure on derivatives is limited to the value of those contracts in a net gain position, including accrued interest
receivable less collateral held. Our credit exposure on derivatives was $1.7 million at December 31, 2022. The carrying value of
cash collateral received from our counterparties was $49.4 million at December 31, 2022. The carrying value of fixed maturity
securities and cash collateral posted to our counterparties was $39.6 million and $5.1 million at December 31, 2022, respectively.
We believe that our credit risk is mitigated by our use of multiple counterparties, all of which have an investment-grade credit
rating, and by our use of cross-collateralization agreements.
Other
We did not have exposure to non-current investments, defined as invested assets which are delinquent as to interest and/or
principal payments at December 31, 2022. At December 31, 2021 our exposure to non-current investments totaled $19.8 million
on a fair value basis.
See Notes 3 and 4 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion of our
investments and our derivative financial instruments.
Liquidity and Capital Resources
Overview
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 additional sources 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.
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, deterioration in the credit market may delay our ability to sell our positions in certain of our fixed
maturity securities in a timely manner and adversely impact the price we receive for such securities, 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 dividends to our stockholders 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 generally consistent, even during cycles of economic
downturns, which serves to minimize liquidity risk.
The liquidity requirements of the holding company Unum Group include common stock dividends, interest and debt service, and
ongoing investments in our businesses. Unum Group's liquidity requirements are met by assets held by Unum Group and our
intermediate holding companies, dividends from primarily our insurance subsidiaries, and issuance of common stock, debt, or
other capital securities and borrowings from our existing credit facility, as needed. As of December 31, 2022, Unum Group and
our intermediate holding companies had available holding company liquidity of $1,571 million that was held primarily in bank
deposits, commercial paper, money market funds, corporate bonds, municipal bonds, and asset backed securities. No significant
restrictions exist on our ability to use or access funds in any of our U.S. or foreign intermediate holding companies. Dividends
repatriated from our foreign subsidiaries are eligible for 100 percent exemption from U.S. income tax but may be subject to
withholding tax and/or tax on foreign currency gain or loss.
91
As part of our capital deployment strategy, we may repurchase shares of Unum Group's common stock, as authorized by our
board of directors. In December 2022, our board of directors authorized the repurchase of up to $200.0 million of Unum Group's
outstanding common stock beginning on January 1, 2023 through December 31, 2023, with the timing and amount of repurchase
activity to be based on market conditions and other considerations, including the level of available cash, alternative uses for cash,
and our stock price. In February 2023, our board of directors authorized an increase to the share repurchase program such that
we are now authorized to repurchase up to $250.0 million of Unum Group's outstanding common stock. Our previous share
repurchase program, which was authorized in October 2021, allowed for the repurchase of up to $250.0 million of Unum Group's
outstanding common stock and expired on December 31, 2022 at which time there were no remaining amounts available to be
repurchased under the program. In February 2022, we entered into an accelerated share repurchase agreement with a financial
counterparty to repurchase $50.0 million of Unum Group's common stock in aggregate. As part of this transaction, we paid
$50.0 million to the financial counterparty and received an initial delivery of 1.3 million shares of our common stock, which
represented approximately 75 percent of the total delivery under the agreement. The final price adjustment settlement, along
with the delivery of the remaining shares, occurred in April 2022, resulting in the delivery to us of 0.4 million additional shares.
In total, we repurchased 1.7 million shares pursuant to the February 2022 accelerated share repurchase agreement. During the
year ended December 31, 2022, we also repurchased 4.0 million shares in open market transactions at a cost of $150.1 million.
See Note 10 of the "Notes to Consolidated Financial Statements" contained herein in Item 8.
Closed Block Individual Disability Reinsurance Transaction
In December 2020, we completed the first phase of a reinsurance transaction, pursuant to which Provident, Paul Revere, and
Unum America, wholly-owned domestic insurance subsidiaries of Unum Group and collectively referred to as "the ceding
companies", each entered into separate reinsurance agreements with Commonwealth to reinsure, on a coinsurance basis effective
as of July 1, 2020, approximately 75 percent of the Closed Block individual disability insurance business, primarily direct
business written by the ceding companies. In March 2021, we completed the second phase of the reinsurance transaction,
pursuant to which the ceding companies and Commonwealth amended and restated their respective reinsurance agreements to
reinsure on a coinsurance and modified coinsurance basis effective as of January 1, 2021, a substantial portion of the remaining
Closed Block individual disability business that was not ceded in December 2020, primarily business previously assumed by the
ceding companies. Commonwealth established and will maintain collateralized trust accounts for the benefit of the ceding
companies to secure its obligations under the reinsurance agreements.
In connection with the first phase of the reinsurance transaction which occurred in December 2020, the ceding companies paid a
total ceding commission to Commonwealth of $437.7 million. In connection with the second phase of the reinsurance
transaction which occurred in March 2021, Commonwealth paid a ceding commission to the ceding companies of $18.2 million.
The ceding companies transferred assets, which consisted primarily of cash and fixed maturity securities, of $6,669.8 million and
$767.0 million for the first phase in December 2020 and the second phase in March 2021, respectively. We released
approximately $400 million of capital during the fourth quarter of 2020 as a result of the closing of the first phase of the
transaction. We released approximately $200 million of capital during the first quarter of 2021 as a result of the closing of the
second phase of the transaction.
See "Reinsurance" contained herein in Item 1; "Segment Results" and "Executive Summary" contained herein in Item 7, and
Notes 12 and 16 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion on the
impacts related to this reinsurance transaction.
Cash Available from Subsidiaries
Unum Group and certain of its intermediate holding company subsidiaries depend on payments from subsidiaries to pay
dividends to stockholders, to pay debt obligations, and/or to pay expenses. These payments by our insurance and non-insurance
subsidiaries may take the form of dividends, operating and investment management fees, and/or interest payments on loans from
the parent to a subsidiary.
Restrictions under applicable state insurance laws limit the amount of dividends that can be paid to a parent company from its
insurance subsidiaries in any 12-month period without prior approval by regulatory authorities. For life insurance companies
domiciled in the U.S., that limitation generally equals, depending on the state of domicile, either ten percent of an insurer's
statutory surplus with respect to policyholders as of the preceding year end or the statutory net gain from operations, excluding
realized capital gains and losses, of the preceding year. The payment of dividends to a parent company from a life insurance
subsidiary is generally further limited to the amount of unassigned funds.
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In connection with a financial examination of Unum America, which closed at the end of the second quarter of 2020, the Maine
Bureau of Insurance (MBOI) concluded that Unum America’s long-term care statutory reserves were deficient by $2,100.0
million as of December 31, 2018, the financial statement date of the examination period. The amount reserves are deficient may
increase or decrease over time based on changes in assumed reinvestment rates, policyholder inventories, rate increase activity,
and the underlying growth in the locked in statutory reserve basis as well as updates to other long term actuarial assumptions.
The MBOI granted permission to Unum America on May 1, 2020, to phase in the additional statutory reserves over seven years
beginning with year-end 2020 and ending with year-end 2026. Additional information regarding the Unum America premium
deficiency reserve (PDR) is as follows:
Year Ended December 31
2022
2021
(in millions of dollars)
2020
Premium Deficiency Reserve
Gross Premium Deficiency Reserve1
Cumulative Gross Premium Deficiency Reserve Recognized
Remaining Premium Deficiency Reserve to be Recognized
$
$
2,851.0 $
1,191.0
1,660.0 $
2,977.0 $
667.0
2,310.0 $
2,290.0
229.0
2,061.0
1The gross PDR decreased by $126.0 million due primarily to premium rate increase activity and underlying growth in the
locked-in statutory reserve basis during 2022. The gross PDR increased by $687.0 million and $190.0 million during 2021 and
2020, respectively, due primarily to changes in the assumed reinvestment rate. The increase for 2020 was from the original
$2,100.0 million reserve deficiency as of December 31, 2018.
The phase in amounts for 2022, 2021, and 2020 were funded using cash flows from operations and capital contributions from
Unum Group. This strengthening is incorporated by using explicitly agreed upon margins into our existing assumptions for
annual statutory reserve adequacy testing. These actions add margin to Unum America's best estimate assumptions. Our long-
term care reserves and financial results reported under generally accepted accounting principles are not affected by the MBOI’s
examination conclusion. We plan to fund the additional statutory reserves with expected cash flows and capital contributions
from Unum Group.
Unum America cedes blocks of business, including the long-term care block, to Fairwind Insurance Company (Fairwind), which
is an affiliated captive reinsurance subsidiary domiciled in the United States. The ability of Fairwind to pay dividends to Unum
Group will depend on its satisfaction of applicable regulatory requirements and on the performance of the business reinsured by
Fairwind. Fairwind did not pay dividends in 2022 nor do we anticipate that Fairwind will pay dividends in 2023. During 2022,
Unum Group made $515.1 million in capital contributions to Fairwind.
The ability of Unum Group and certain of its intermediate holding company subsidiaries to continue to receive dividends from
their insurance subsidiaries also depends on additional factors such as RBC ratios and capital adequacy and/or solvency
requirements, funding growth objectives at an affiliate level, and maintaining appropriate capital adequacy ratios to support
desired ratings. The RBC ratios for our U.S. insurance subsidiaries at December 31, 2022 are in line with our expectations and
are significantly above the level that would require state regulatory action.
Unum Group and/or certain of its intermediate holding company subsidiaries may also receive dividends from our U.K.
subsidiaries, the payment of which may be subject to applicable insurance company regulations and capital guidance in the U.K.
Unum Limited is subject to the requirements of Solvency II, a European Union (EU) directive that is part of retained UK law
pursuant to the European Union (Withdrawal) Act 2018, which prescribes capital requirements and risk management standards
for the European insurance industry. Our U.K. holding company is also subject to the Solvency II requirements relevant to
insurance holding companies while, together with certain of its subsidiaries including Unum Limited, the group (the Unum UK
Solvency II Group) is subject to group supervision under Solvency II. The Unum UK Solvency II Group received approval from
the U.K. Prudential Regulation Authority to use its own internal model for calculating regulatory capital and also received
approval for certain associated regulatory permissions including transitional relief as the Solvency II capital regime continues to
be implemented. In connection with the U.K.’s exit from the EU, the U.K. government is reviewing the regulatory framework of
financial services companies which may result in changes to U.K. regulatory capital or U.K. tax regulations. Recent economic
conditions have caused volatility in our solvency ratios used to monitor capital adequacy.
The payment of dividends to the parent company from our subsidiaries also requires the approval of the individual subsidiary's
board of directors.
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The amount available during 2022 for the payment of ordinary dividends from Unum Group's traditional U.S. insurance
subsidiaries, which excludes Fairwind, was approximately $861 million. During 2022, we declared and paid $1,154.0 million in
dividends including $1,131.0 paid in cash, of which $477.3 million was considered an extraordinary dividend, and $23.0 million
paid in fixed maturity securities. Also during 2022, $39.0 million in cash was paid to Unum Group from one of our traditional
U.S. insurance companies as a return of capital. The amount available during 2022 from Unum Limited was approximately £130
million, of which £50.0 million were declared and paid to Unum Group through our U.K holding company, Unum European
Holding Company Limited.
During 2023, we intend to maintain a level of capital in our insurance subsidiaries above the applicable capital adequacy
requirements and minimum solvency margins. As a result of our consideration of overall capitalization needs, we may not
utilize the entire amount of dividends available in 2023, which are based on applicable restrictions under current law.
Approximately $991 million is available, without prior approval by regulatory authorities, during 2023 for the payment of
dividends from Unum Group's traditional U.S. insurance subsidiaries, which excludes our captive reinsurer. Approximately £80
million is considered distributable from Unum Limited during 2023, subject to local solvency standards and regulatory approval.
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, which does not apply to our current entity structure.
Funding for Employee Benefit Plans
We made contributions of $70.0 million and £4.0 million to our U.S. and U.K. defined contribution plans, respectively, in 2022
and expect to make contributions of approximately $77 million and £5 million during 2023. We had no regulatory contribution
requirements for our U.S. qualified defined benefit pension plan in 2022 and made no voluntary contributions in 2022. We do
not expect to have regulatory contribution requirements for our U.S. qualified defined benefit pension plan in 2023, but we
reserve the right to make voluntarily contributions during 2023. We made no contributions to our U.K. qualified defined benefit
pension plan during 2022. We do not expect to have regulatory contribution requirements for our U.K. plan during 2023, but we
reserve the right to make voluntarily contributions during 2023. We have met all minimum pension funding requirements set
forth by the Employee Retirement Income Security Act. We have estimated our future funding requirements under the Pension
Protection Act of 2006 and under applicable U.K. law and do not believe that any future funding requirements will cause a
material adverse effect on our liquidity. See Note 9 of the "Notes to Consolidated Financial Statements" contained herein in
Item 8 for further discussion of our employee benefit plans.
Debt, Term Loan Facility, Credit Facilities and Other Sources of Liquidity
There are no significant financial covenants associated with any of our outstanding debt obligations. We continually monitor our
debt covenants to ensure we remain in compliance. We have not observed any current trends that would cause a breach of any
debt covenants.
Maturities, Purchases, and Retirement of Debt
In September 2022, pursuant to privately negotiated transactions, we purchased, and the Provident Financing Trust I (the Trust)
retired, $14.0 million aggregate liquidation amount of the Trust's 7.405% capital securities due 2038, which resulted in the
reduction of a corresponding principal amount of our 7.405% junior subordinated debt securities due 2038 then held by the
Trust. We incurred costs of $1.2 million related to the early retirement of the junior subordinated debt securities.
In August 2022, we redeemed $350.0 million aggregate principal amount of our 4.000% senior notes due 2024, for which we
incurred costs of $3.0 million.
In June 2021, we purchased and retired $500.0 million aggregate principal amount of our 4.500% senior notes due 2025, for
which we incurred costs of $67.3 million related to the early retirement of debt.
Northwind Holdings made periodic principal payments on the Northwind notes of $45.0 million in 2020. In December 2020,
Northwind Holdings redeemed the remaining $35.0 million of principal on the Northwind notes, and was released of any
contractual collateral requirements.
In September 2020, our $400.0 million 5.625% senior unsecured notes matured.
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Issuance of Debt
In June 2021, we issued $600.0 million of 4.125% senior notes due 2051. The notes are callable at or above par and rank equally
in the right of payment with all of our other unsecured and unsubordinated debt.
In May 2020, we issued $500.0 million of 4.500% senior notes due 2025, which were subsequently purchased and retired in June
2021 as previously discussed.
Term Loan Facility
In August 2022, we entered into a five-year $350.0 million senior unsecured delayed draw term loan facility with a syndicate of
lenders. Also in August 2022 , we drew the entire amount of the term loan facility, which is scheduled to mature in August
2027. Amounts due under the term loan facility incur interest based on the prime rate, the federal funds rate or the Secured
Overnight Financing Rate (SOFR). The proceeds from the term loan facility were used to redeem $350.0 million aggregate
principal amount of our 4.000% senior notes due 2024.
Borrowings under the term loan facility are subject to financial covenants, negative covenants, and events of default that are
customary. The term loan facility includes financial covenants based on our leverage ratio and consolidated net worth.
Credit Facilities
In April 2022, we amended and restated our existing credit agreement providing for a five-year $500.0 million senior unsecured
revolving credit facility with a syndicate of lenders. The credit facility, which was previously set to expire in April 2024, was
extended through April 2027. We may request that the lenders’ aggregate commitments of $500.0 million under the facility be
increased by up to an additional $200.0 million. Certain of our traditional U.S. life insurance subsidiaries, Unum America,
Provident, and Colonial Life, joined the agreement and may borrow under the credit facility, and we can elect to add additional
insurance subsidiaries to the facility at any later date. Any obligation of a subsidiary under the credit facility is several only and
not joint and is subject to an unconditional guarantee by Unum Group. We may also request, on up to two occasions, that the
lenders' commitment termination dates be extended by one year. The credit facility also provides for the issuance of letters of
credit subject to certain terms and limitations. At December 31, 2022, there were no borrowed amounts outstanding under the
credit facility and letters of credit totaling $0.4 million had been issued.
We also have a five-year, £75 million senior unsecured standby letter of credit facility with a different syndicate of lenders,
pursuant to which a syndicated letter of credit was issued in favor of Unum Limited (as beneficiary), our U.K. insurance
subsidiary, and is available for drawings up to £75 million until its scheduled expiration in July 2026. The credit facility
provides for borrowings at an interest rate based on the prime rate or the federal funds rate. No amounts have been drawn on the
letter of credit. If drawings are made in the future, we may elect to borrow such amounts from the lenders pursuant to term loans
made under the credit facility.
Borrowings under the credit facilities are subject to financial covenants, negative covenants, and events of default that are
customary. The two primary financial covenants include limitations based on our leverage ratio and consolidated net worth. We
are also subject to covenants that limit subsidiary indebtedness. The credit facilities provide for borrowings at an interest rate
based either on the prime rate, federal funds rate, or SOFR.
See Note 8 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for additional information on our
debt.
Facility Agreement for Contingent Issuance of Senior Notes
We also have a 20-year facility agreement with a Delaware trust that gives us the right to issue and to sell to the trust, on one or
more occasions, up to $400.0 million of 4.046% senior notes in exchange for U.S. Treasury securities held by the trust. These
senior notes will not be issued unless and until the issuance right is exercised. The exercise of the issuance right triggers
recognition of the senior notes on our consolidated balance sheets. As the amount we receive upon exercise of the issuance right
is contingent upon the value of the U.S. Treasury securities, a decline in the value of the U.S. Treasury securities reduces the
amount we would receive upon exercise of the issuance right. We may also direct the trust to grant the right to exercise the
issuance right with respect to all or a designated amount of the senior notes to one or more assignees (who are our consolidated
subsidiaries or persons to whom we have an obligation). We pay a semi-annual facility fee to the trust at a rate of 2.225% per
95
year on the unexercised portion of the maximum amount of senior notes that we could issue and sell to the trust and we
reimburse the trust for its expenses. For more information, see Note 8 of the "Notes to Consolidated Financial Statements"
contained herein in Item 8 for further discussion of this agreement.
Shelf Registration
We filed a shelf registration with the Securities and Exchange Commission in 2020 to issue various types of securities, including
common stock, preferred stock, debt securities, depository shares, stock purchase contracts, units and warrants. The shelf
registration enables us to raise funds from the offering of any securities covered by the shelf registration as well as any
combination thereof, subject to market conditions and our capital needs.
Cash Requirements
As previously discussed, cash is applied primarily to the payment of policy benefits, costs of acquiring new business (principally
commissions), operating expenses, and taxes, as well as purchases of investments. We have established an investment strategy
that we believe will provide for adequate cash flows from operations to meet cash payment requirements. Summarized below
are our estimated material cash requirements, both in the short-term (within 12 months) and the long-term (beyond 12 months)
resulting from contractual obligations as of December 31, 2022:
•
•
•
•
•
•
•
Policyholder liabilities totaled $46,839.8 million, of which $4,578.3 million is estimated to be paid in 2023. We also
maintain reinsurance agreements for which the recoverable under those agreements totaled $13,607.2 million of which
$1,211.5 million is estimated to offset related policyholder liability payments in 2023. Policyholder liabilities and the
related reinsurance recoverable represent the projected payout of the current in-force 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 in-force
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 over time.
Payments related to our long-term debt and our facility agreement, which include contractual principal and interest
payments and therefore exceeds the amount shown in the consolidated balance sheets, totaled $6,714.6 million, of
which $193.0 million in interest payments is estimated to be paid in 2023. Payments related to our short-term debt,
which include contractual principal and interest payments and therefore exceeds the amount shown in the consolidated
balance sheets, totaled $2.1 million.
Investment commitments which represent commitments we have made to purchase or fund investments including
privately placed fixed maturity securities, commercial mortgage loans, and private equity partnerships totaled $841.2
million, all of which is estimated to be paid in 2023 based on the expiration date of the commitments. The timing of the
fulfillment of certain of these commitments cannot be estimated, therefore the settlements of these obligations are
reflected in amounts estimated to be paid in 2023. These commitments may or may not be funded and are therefore not
recorded on our consolidated balance sheets.
Pensions and OPEB which includes commitments related to our defined benefit pension and postretirement plans for
our employees, including our non-qualified pension plan, totaled $688.8 million, of which $18.9 million is estimated to
be paid in 2023. Pension plan obligations, other than the non-qualified plan, represent our contributions to the pension
plans and are projected based on the expected future minimum contributions as required under current U.S. and U.K.
legislative funding requirements. Non-qualified pension plan and other postretirement benefit obligations represent the
expected benefit payments related to these plans which we expect to pay, as incurred, from our general assets.
Amounts owed to reinsurers totaled $574.2 million of which $153.8 million is estimated to be paid in 2023.
Payables for general operating expenses and deferred compensation liabilities totaled $381.3 million of which
$281.5 million is estimated to be paid in 2023.
Obligations to return advances received from the FHLB and to return unrestricted cash collateral to our securities
lending and derivative counterparties totaled $236.9 million of which $199.2 million is estimated to be repaid in 2023.
Commissions due totaled $125.8 million all of which is estimated to be paid in 2023.
•
• We also have obligations with outside parties for computer data processing services, software maintenance agreements,
and consulting services of $94.9 million, of which $52.0 million is estimated to be paid in 2023.
96
•
Operating lease payments representing the amount of undiscounted minimum lease payments due totaled $78.5 million
of which $18.2 million is estimated to be paid in 2023.
See "Critical Accounting Estimates" contained herein in this Item 7 and Notes 3, 4, 6, 8, 9, 12, and 15 of the "Notes to
Consolidated Financial Statements" contained herein in Item 8 for additional information on our various commitments and
obligations.
Transfers of Financial Assets
Our investment policy permits us to lend fixed maturity securities to unaffiliated financial institutions in short-term securities
lending agreements, which increases our investment income with minimal risk. We account for all of our securities lending
agreements and repurchase agreements as secured borrowings. As of December 31, 2022, we held $88.5 million of cash
collateral from securities lending agreements. The average balance for securities lending agreements which were collateralized
by cash during the year ended December 31, 2022 was $95.3 million, and the maximum amount outstanding at any month end
was $122.1 million. In addition, at December 31, 2022, we had $69.8 million of off-balance sheet securities lending agreements
which were collateralized by securities that we were neither permitted to sell nor control. The average balance of these off-
balance sheet transactions during the year ended December 31, 2022 was $160.0 million, and the maximum amount outstanding
at any month end was $212.2 million.
To manage our cash position more efficiently, we may enter into securities repurchase agreements with unaffiliated financial
institutions. We generally use securities repurchase agreements as a means to finance the purchase of invested assets or for
short-term general business purposes until projected cash flows become available from our operations or existing investments.
We had no securities repurchase agreements outstanding at December 31, 2022, nor did we utilize any securities repurchase
agreements during 2022. Our use of securities repurchase agreements and securities lending agreements can fluctuate during any
given period and will depend on our liquidity position, the availability of long-term investments that meet our purchasing
criteria, and our general business needs.
Certain of our U.S. insurance subsidiaries are members of regional Federal Home Loan Banks (FHLB). As of December 31,
2022, we owned $17.1 million of FHLB common stock and had outstanding advances of $99.1 million from the regional FHLBs
which were used for the purpose of investing in either short-term investments or fixed maturity securities. As of December 31,
2022, we have additional borrowing capacity of approximately $752.7 million from the FHLBs.
See Note 3 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for additional information.
Consolidated Cash Flows
(in millions of dollars)
Net Cash Provided by Operating Activities
Net Cash Used by Investing Activities
Net Cash Used by Financing Activities
Net Change in Cash and Bank Deposits
Operating Cash Flows
Year Ended December 31
2021
2022
2020
$
$
1,418.7 $
(955.9)
(418.6)
44.2 $
1,387.5 $
(1,340.6)
(168.9)
(122.0) $
469.3
(267.7)
(88.7)
112.9
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 policy renewals
and growth of existing business, renewal price increases, and persistency. Investment income growth is dependent on the growth
in the underlying assets supporting our insurance reserves and capital and on the earned yield. The level of commissions and
operating expenses is attributable to the level of sales and the first year acquisition expenses associated with new business as
well as the maintenance of existing business. The level of paid claims is affected partially by the growth and aging of the block
of business and also by the general economy, as previously discussed in the operating results by segment.
Included in the change in insurance reserves and liabilities for 2022, 2021, and 2020 were the net reserve changes related to the
reserve assumption updates that occurred during the third quarters of 2022 and 2021 and the fourth quarter of 2020. Also
97
included in the change in insurance reserves and liabilities and net investment (gain) loss to reconcile net income to net cash
provided by operating activities as reported in our consolidated statements of cash flows for 2021 and 2020 were the impacts of
the two phases of the Closed Block individual disability reinsurance transaction that occurred during the first quarter of 2021 and
the fourth quarter of 2020. Additionally, the operating cash flows for 2021 and 2020 included $456.8 million and $1,087.2
million, respectively, of cash paid to the reinsurer related to the two phases of the Closed Block individual disability reinsurance
transaction. See "Executive Summary" contained herein in this Item 7 and Note 6 and 12 of the "Notes to Consolidated
Financial Statements" contained herein in Item 8 for additional information on the Closed Block individual disability reinsurance
transaction and the reserve assumption updates.
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. Our investment strategy is to match the cash flows and durations of
our assets with the cash flows and durations of our liabilities to meet the funding requirements of our business. When market
opportunities arise, we may sell selected securities and reinvest the proceeds to improve the yield and credit quality of our
portfolio. We may at times also sell selected securities and reinvest the proceeds to improve the duration matching of our assets
and liabilities and/or re-balance our portfolio. As a result, sales before maturity may vary from period to period. The sale and
purchase of short-term investments is influenced by proceeds received from FHLB funding advances, issuance of debt, our
securities lending program, and by the amount of cash which is at times held in short-term investments to facilitate the
availability of cash to fund the purchase of appropriate long-term investments, repay maturing debt, and/or to fund our capital
deployment program.
See Note 3 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further information.
Financing Cash Flows
Financing cash flows consist primarily of borrowings and repayments of debt, repurchase of common stock, dividends paid to
stockholders, and policyholder account deposits and withdrawals related to our universal life products.
During 2022, we purchased, and the Trust retired, $14.0 million aggregate liquidation amount of our 7.405% capital securities
due 2038, for which we paid an additional $1.2 million in cash associated with the early retirement of this debt.
During 2022, we entered into a five-year $350.0 million senior unsecured delayed draw term loan facility with a syndicate of
lenders. Also in 2022, we drew the entire amount of the term loan facility, for which we received total proceeds of $349.2
million, and used the proceeds to redeem $350.0 million aggregate principal amount of our 4.000% senior notes due 2024, for
which we paid an additional $2.4 million in cash associated with the early retirement of this debt.
During 2021, we issued $600.0 million of 4.125% senior notes due 2051 and received total proceeds of $588.1 million.
Also during 2021, we purchased and retired $500.0 million aggregate principal amount of our 4.500% senior notes due 2025, for
which we paid an additional $62.8 million in cash associated with the early retirement of this debt. We had issued the $500.0
million 4.500% senior notes in 2020 and had received total proceeds of $494.1 million.
During 2020, our $400.0 million 5.625% senior unsecured notes matured and we repaid the remaining $80.0 million of principal
on our senior secured non-recourse notes issued by Northwind Holdings.
Cash used to repurchase shares of Unum Group's common stock during 2022 and 2021 was $200.1 million and $50.0 million,
respectively. There were no share repurchases made during 2020. During 2022, 2021, and 2020 we paid dividends of $254.2
million, $239.4 million, and $231.9 million, respectively, to holders of Unum Group's common stock.
Included in financing cash flows during 2022, 2021, and 2020 was $5.2 million, $40.4 million, and $62.1 million, respectively,
of cash received related to the ALR cohort volatility agreement with Commonwealth.
See "Debt, Term Loan Facility, Credit Facilities and Other Sources of Liquidity" contained herein in this Item 7, and Notes 8,
10, and 12 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further information.
Ratings
AM Best, Fitch, Moody's, and S&P are among the third parties that assign issuer credit ratings to Unum Group and financial
98
strength ratings to our insurance subsidiaries. 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.
The table below reflects the outlook as well as 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 and Accident Insurance Company
Provident Life and Casualty Insurance Company
Unum Life Insurance Company of America
First Unum Life Insurance Company
Colonial Life & Accident Insurance Company
The Paul Revere Life Insurance Company
Starmount Life Insurance Company
Unum Insurance Company
Unum Limited
Outlooks
Issuer Credit Rating
Financial Strength Rating
NR = not rated
AM Best
bbb
Fitch
BBB-
Moody's
Baa3
S&P
BBB
A
A
A
A
A
A
A
A
NR
A-
A-
A-
A-
A-
A-
NR
A-
NR
A3
NR
A3
A3
A3
A3
NR
A3
NR
A
NR
A
A
A
A
NR
NR
A-
Positive
Stable
Positive
Positive
Stable
Stable
Stable
Stable
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 our annual review meeting with each of the four agencies. We hold other meetings throughout the
year regarding our business, including, but not limited to, quarterly updates.
In July 2022, AM Best upgraded its financial strength rating on Unum Insurance Company from A- to A, reflecting the strategic
importance of this subsidiary to Unum Group and also affirmed its financial strength rating for our other domestic insurance
subsidiaries as well as their issuer credit ratings on our senior debt obligations. In addition, AM Best revised the outlook for the
long-term issuer credit rating to positive from stable, reflecting strengthening in risk-adjusted capitalization, stable asset quality,
adequate reserves, and enhanced liquidity. The AM Best outlook for financial strength rating remains stable.
In December 2022, Fitch revised its outlook to positive from stable primarily reflecting improvements in the balance sheet, as
well as earnings metrics that exceeded expectations for the current rating and returned towards pre-pandemic levels.
There have been no other changes in the rating agencies' outlooks or ratings during 2022 or in 2023 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. We have ongoing dialogue with the
rating agencies concerning our insurance risk profile, our financial flexibility, our operating performance, and the quality of our
investment portfolios. The rating agencies provide specific criteria and, depending on our performance relative to the criteria,
will determine future negative or positive rating agency actions.
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See "Ratings" contained herein in Item 1 and "Risk Factors" contained herein in Item 1A for further discussion.
ITEM 7A. 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 "Risk Factors" contained herein in Item 1A, "Investments" contained herein in Item 7,
and Notes 2, 3, and 4 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion 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, public utility bonds, 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 further 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 impaired, or determine that a derivative
instrument is no longer an effective hedge.
Other fixed rate investments, such as policy loans and mortgage loans, are carried at unpaid balances and amortized cost less the
allowance for expected credit losses, 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, the level of cash and marketable securities at our holding companies, 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 our policy benefits are primarily in the form of claim payments and we therefore have minimal exposure to the policy
withdrawal risk associated with deposit products such as individual life policies or annuities, 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 monitor our
asset and liability cash flow match and our asset and liability duration match to manage interest rate risk. Due to the long
duration of our long-term care product, the timing of our investment cash flows do not match those of our maturing liabilities.
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 enables us to choose what we believe to be the most
appropriate investment strategy, as well as to limit the risk of disadvantageous outcomes. We use this analysis in determining
hedging strategies and utilizing derivative financial instruments. We may use current and forward interest rate swaps, options on
forward interest rate swaps, and forward treasury locks to hedge interest rate risks and to match asset durations and cash flows
with corresponding liabilities.
100
Debt is not carried at fair value in our consolidated balance sheets. If we modify or replace existing 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.
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, 2022 and 2021 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, 2022 and 2021 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 Deferred Acquisition Costs 2
Long-term Debt
Derivatives 1
Notional
Amount of
Derivatives
December 31, 2022
Hypothetical
Fair Value
FV + 100 BP
Change in
FV
$
34,840.8 $
2,159.5
364.5
32,158.6 $
2,034.3
339.0
(2,682.2)
(125.2)
(25.5)
$
559.9 $
(3,072.0)
1,853.0 $
(2,681.3)
1,293.1
390.7
Swaps
Forwards
Embedded Derivative in Modified Coinsurance Arrangement
$
935.6 $
818.3
58.0 $
(42.9)
(13.9)
55.9 $
(129.7)
(9.5)
(2.1)
(86.8)
4.4
(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 Deferred Acquisition Costs 2
Long-term Debt
Derivatives 1
Notional
Amount of
Derivatives
December 31, 2021
Hypothetical
Fair Value
FV + 100 BP
Change in
FV
$
43,336.0 $
2,677.8
433.4
39,613.6 $
2,510.9
401.1
(3,722.4)
(166.9)
(32.3)
$
(4,597.8) $
(3,879.1)
(2,526.9) $
(3,502.0)
2,070.9
377.1
Swaps
Forwards
Embedded Derivative in Modified Coinsurance Arrangement
$
928.8 $
41.7
3.1 $
1.4
(30.1)
3.0 $
1.4
(24.4)
(0.1)
—
5.7
1 These financial instruments 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. The
101
corresponding offsetting change is reported in other comprehensive income or loss, net of income tax, except for changes in the
fair value of derivatives accounted for as fair value hedges or derivatives not designated as hedging instruments, together with
the payment of periodic fees, if applicable, which are recognized in the same income statement line item as the hedged item
during the period of change in fair value.
2 The adjustment to reserves and deferred acquisition costs for unrealized investment gains and losses reflects the
adjustments to policyholder liabilities and deferred acquisition costs that would be necessary if the unrealized investment
gains and losses related to the fixed maturity securities had been realized. Changes in this adjustment are also reported as a
component of other comprehensive income or loss, net of income tax. Effective January 1, 2023 we will adopt Accounting
Standard Update 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2018-12), which
will significantly change how we value our reserves, and we will no longer record an adjustment to reserves or deferred
acquisition costs for unrealized investment gains and losses. See "Accounting Developments" contained herein in Item 7
and Note 1 of the "Notes to the Consolidated Financial Statements" contained herein in Item 8 for further discussion on the
impacts upon adoption.
The effect of a change in interest rates on asset prices was determined using a duration implied methodology for the fixed
maturity 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. 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 flow analyses. Because we actively manage our investments and liabilities, actual changes
could differ from those estimated above.
Although interest rates increased in 2022, long-term interest rates supporting the majority of our lines of business remain below
historical norms, which continues to place pressure on our profit margins as we invest cash flows to support our businesses. We
estimate that we will have approximately $1.9 billion of investable cash flows in 2023. Assuming interest rates and credit
spreads remain constant throughout 2024 at the January 2023 market levels, our net investment income would decrease by an
immaterial amount in both 2023 and 2024 as a result of the investment of cash flows at levels below our current portfolio rate.
This interest rate scenario does not give consideration to the effect of other factors which could impact these results, such as
changes in the bond market and changes in hedging strategies and positions, nor does it consider the potential change to our
discount rate reserve assumptions and any mitigating factors such as pricing adjustments. In addition, changes in the interest rate
environment, along with other factors, impact the net periodic benefit costs for our pension plans, but we do not believe it would
materially affect net income in 2023 or 2024.
See "Critical Accounting Estimates" contained herein in Item 7 for further information concerning our pension and post-
retirement benefit plans.
Foreign Currency Risk
The functional currency of our U.K. operations is the British pound sterling. The functional currency of our operations in Poland
is the Polish zloty. We are exposed to foreign currency risk arising from fluctuations in the British pound sterling and Polish
zloty to U.S. dollar exchange rates primarily as they relate to the translation of the financial results of our U.K. and Polish
operations. Fluctuations in exchange rates impact reported financial results. We do not hedge against the possible impact of this
risk. Because we do not actually convert our functional currency 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 our U.K. or
Polish operations.
Assuming the pound to dollar exchange rate decreased 10 percent from the December 31, 2022 and 2021 levels, stockholders'
equity as reported in U.S. dollars would have been lower by approximately $59 million and $67 million, respectively. Assuming
the pound to dollar average exchange rate decreased 10 percent from the actual average exchange rates for 2022 and 2021,
adjusted operating income, as reported in U.S. dollars, would have decreased approximately $12 million and $10 million,
respectively. Our Polish operations are currently not a significant portion of our overall operations and any changes in the dollar
exchange rate would not represent a material impact to our reported financial results in U.S. dollars.
Dividends paid by Unum Limited are paid to our U.K. holding company. When these funds are repatriated to our U.S. holding
company, we are subject to foreign currency risk as the value of the dividend, when converted into U.S. dollars, is dependent
upon the foreign exchange rate at the time of conversion.
102
We are also exposed to foreign currency risk related to certain foreign investment securities denominated in local currencies.
We use foreign currency interest rate swaps to hedge or minimize the foreign exchange risk associated with these instruments.
See "Risk Factors" contained herein in Item 1A and "Consolidated Operating Results" and "Unum International Segment"
contained herein in Item 7 for further information concerning foreign currency translation.
Risk Management
Effectively taking and managing risks is essential to the success of our Company. To facilitate this effort, we have a formal
Enterprise Risk Management (ERM) program, with a framework comprising the following key components:
•
•
•
•
•
•
Risk-aware culture and governance
Risk appetite policy
Risk identification and prioritization
Risk and capital modeling
Risk management activities
Risk reporting
Our ERM framework is the ongoing system of people, processes, and tools across our Company under which we intend to
function consistently and collectively to identify and assess risks and opportunities, to manage all material risks within our risk
appetite, and to contribute to strategic decision making. With the goal of maximizing shareholder value, the primary objectives
of our ERM framework are to support Unum Group in meeting its operational and financial objectives, maintaining liquidity,
optimizing capital, and protecting franchise value.
Risk-Aware Culture and Governance
We employ a risk management model under which risk-based decisions are made daily on a local level. To achieve long-term
success, we believe risk management must be the responsibility of all employees. The individual and collective decisions of our
employees play a key role in successfully managing our overall risk profile. We strive for a culture of integrity, commitment,
and accountability and we believe these values allow our employees to feel comfortable identifying issues as well as taking
ownership for addressing potential problems.
Our employees have an obligation to report issues that they believe will have a material financial, reputational, or regulatory
impact to the Company. We offer several channels for employees to report their issues or concerns and encourage employees to
use the channel that is most appropriate for their situation. We recommend that an employee initially discuss their concerns with
their manager; however, if that channel is not appropriate an employee may use any of the other reporting channels available.
By employing various approaches, we have established a culture that supports candid discussion and reporting of risks, and
empowers our employees to take ownership for risk management.
Our culture is reinforced by our system of risk governance. We employ a multi-layered risk control system. Our lines of
defense model is depicted below.
1st Line: Own and Manage
2nd Line: Oversee
3rd Line: Independent Assurance
Business processes and procedures
employed throughout the Company
through which management assumes
and monitors significant risks
Governing bodies chartered with
oversight of activities within the 1st
and 2nd lines of defense, mitigation of
substantial exposures, and
management of emerging risks
Independent assurance on the
effectiveness of governance, risk
management, and internal control
performed by internal audit and the
board of directors
Business units are primarily responsible for managing their principal risks. Our risk committees and other governing bodies
serve as risk and control functions responsible for providing risk oversight, or the second line of risk control. Our internal audit
team provides periodic independent reviews and assurance activities serving as our third line of risk control.
In addition, our board has an active role, as a whole and through its committees, in overseeing management of our risks. The
board is responsible for the oversight of strategic risk and regularly reviews information regarding our capital, liquidity, and
operations, as well as the risks associated with each. The risk and finance committee of the board is responsible for oversight of
our risk management process, including financial risk, operational risk, and any other risk not specifically assigned to another
board committee. It also is responsible for oversight of risks associated with investments, capital and financing plans and
103
activities, and related financial matters, including matters pertaining to our Closed Block segment. The risk and finance
committee also oversees risks arising under our information security and business resiliency programs, including cybersecurity,
disaster recovery, and business continuity risks, although other committees oversee cyber-related operational risks as necessary
to carry out their responsibilities. The audit committee of the board is responsible for oversight of risks relating to financial
reporting risk and certain operational risks. The human capital committee of the board is responsible for oversight of risks
relating to our compensation plans and programs. The regulatory compliance committee of the board is responsible for oversight
of risks related to regulatory, compliance, policy, and legal matters, both current and emerging, and whether of a local, state,
federal, or international nature. While each committee is responsible for evaluating certain risks and overseeing the management
of such risks, the entire board is regularly informed through committee reports about such risks in addition to the risk
information it receives directly.
Our executive risk management committee is responsible for overseeing our enterprise-wide risk management program. The
chief risk officer, who is a member of the executive risk management committee, has primary responsibility for our ERM
program and is supported by management committees and other governing bodies. These committees are responsible for
identifying, measuring, reporting, and managing strategic insurance and operational risks within their respective areas, consistent
with enterprise risk management guidance.
Risk Appetite Policy
Our risk appetite policy describes the types of risks we are willing to take, as well as the amount of enterprise risk exposure we
deem acceptable in pursuit of our goals, with an objective of clearly defining boundaries for our risk-taking activities.
The starting point of our philosophy and approach to our ERM strategy is our corporate strategy. In contrast to many multi-line
peer companies, we do not offer retirement savings, traditional medical benefits, or property and casualty insurance. Our
corporate strategy is focused on providing group, individual, and voluntary benefits, either as stand-alone products or combined
with other coverages, that create comprehensive benefits solutions for employers. We have market leadership positions in the
product lines we offer and believe this combination of focused expertise and experience is a competitive advantage and forms the
foundation of our approach to risk management.
We believe our sound and consistent business practices, strong internal compliance program, and comprehensive risk
management strategy enable us to operate efficiently and to identify and address potential areas of risk in our business. We take
and manage risks to achieve our business and strategic objectives, and our risk appetite statement sets boundaries for risk-taking
activities that link earnings, capital, and operational processes, as well as summarizes our most material risk limits and controls.
We monitor our risk profile against our established risk tolerance and limits. Risks falling outside our risk tolerance and limits
are reported to the applicable governance group, where decisions are made pertaining to acceptance of the risk or implementation
of remediation plans or corrective actions as deemed appropriate by that governance group.
Risk Identification and Prioritization
Risk identification and prioritization is an ongoing process, whereby we identify and assess our risk positions and exposures,
including notable risk events. Additionally, we identify emerging risks and analyze how material future risks might affect us.
Knowing the potential risks we face allows us to monitor and manage their potential effects including adjusting our strategies as
appropriate and holding capital levels which provide financial flexibility. Business process owners, supported by the ERM
program, have primary responsibility for identifying and prioritizing risks within their respective areas.
We face a wide range of risks, and our continued success depends on our ability to identify and appropriately manage our risk
exposures. For additional information on certain risks that may adversely affect our business, operating results, or financial
condition see "Cautionary Statement Regarding Forward-Looking Statements" contained herein on page 1 and "Risk Factors"
contained herein in Item 1A.
Risk Modeling and Controls
We assess material risks, including how they affect us and how individual risks interrelate, to provide valuable information to
management in order that they may effectively manage our risks. We use qualitative and quantitative approaches to assess
existing and emerging risks and to develop mitigating strategies to limit our exposure to both.
104
We utilize stress testing and scenario analysis for risk management and to shape our business, financial, and strategic planning
activities. Both are key components of our risk appetite policy and play an important role in monitoring, assessing, managing,
and mitigating our primary risk exposures.
In particular, stress testing of our capital and liquidity management strategies enables us to identify areas of high exposure,
assess mitigating actions, develop contingency plans, and guide decisions around our target capital and liquidity levels. For
example, we periodically perform stress tests on certain categories of assets or liabilities to support development of capital and
liquidity risk contingency plans. These tests help ensure that we have a buffer to support our operations in uncertain times and
financial flexibility to respond to market opportunities. Stress testing is also central to reserve adequacy testing, cash flow
testing, and asset and liability management.
In addition, we aim to constantly improve our capital modeling techniques and methodologies that are used to determine a level
of capital that is commensurate with our risk profile and to ensure compliance with evolving regulatory and rating agency
requirements. Our capital modeling reflects appropriate aggregation of risks and diversification benefits resulting from our mix
of products and business units.
Our internal capital modeling and allocation aids us in making significant business decisions including strategic planning, capital
management, risk limit determination, reinsurance purchases, hedging activities, asset allocation, pricing, and corporate
development.
Risk Management Activities
We accept and manage market, credit, insurance, operational and strategic risks in accordance with our corporate strategy,
investment policy, and annual business plans. The following fundamental principles are embedded in our risk management
efforts across our Company.
• We believe in the benefits of specialization and a focused business strategy. We seek profitable risk-taking in areas
where we have established risk management skills and capabilities.
• We seek to manage our exposure to insurance risk through a combination of prudent underwriting with effective risk
selection, maintaining pricing discipline, sound reserving practices, claims operational effectiveness, and selective use
of reinsurance. Detailed underwriting guidelines and claim policies are tools used to manage our insurance risk
exposure. We also monitor exposures against internally prescribed limits, and we diversify to reduce potential
concentration risk and volatility.
• We maintain a detailed set of investment policies and guidelines, including fundamental credit analysis, that are used to
manage our credit risk exposure and diversify our risks across asset classes and issuers.
• We value the importance of managing cyber-related risks, and have policies and procedures in place to help protect
•
against insider trading and allow for timely disclosure of material cybersecurity events.
Finally, we foster a risk-aware culture that embeds our corporate values and our code of conduct in our daily operations
and preserves our reputation with customers and other key stakeholders. We monitor a composite set of operational risk
metrics that measure operating effectiveness from the customer perspective.
Risk Reporting
Regular internal and external risk reporting is an integral part of our ERM framework. Internally, ERM reports are a standard
part of our quarterly senior management and board meetings. The reports summarize our existing and emerging risk exposures,
as well as report against the tolerances and limits defined by our risk appetite policy.
Externally, we are subject to a number of regulatory and rating agency risk examinations, and risk reports are often included.
Annually, we file our Own Risk and Solvency Assessment (ORSA) summary report with the applicable insurance regulators for
our U.S. insurance subsidiaries. This report provides strong evidence of the strengths of our ERM framework, measurement
approaches, key assumptions utilized in assessing our risks, and prospective solvency assessments under both normal and
stressed conditions. See "Regulation" contained herein in Item 1 for additional information regarding the ORSA.
105
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
PCAOB ID: 42
Financial Statements at December 31, 2022 and 2021 and for the Years Ended December 31, 2022, 2021 and 2020:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies
Note 2 - Fair Values of Financial Instruments
Note 3 - Investments
Note 4 - Derivative Financial Instruments
Note 5 - Accumulated Other Comprehensive Income
Note 6 - Liability for Unpaid Claims and Claim Adjustment Expenses
Note 7 - Income Tax
Note 8 - Debt
Note 9 - Employee Benefit Plans
Note 10 - Stockholders' Equity and Earnings Per Common Share Note
11 - Stock Based Compensation
Note 12 - Reinsurance
Note 13 - Segment Information
Note 14 - Commitments and Contingent Liabilities
Note 15 - Leases
Note 16 - Statutory Financial Information
Page
107
109
109
111
112
113
114
115
115
129
145
158
167
169
172
176
179
188
190
194
195
202
202
204
106
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Unum Group
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Unum Group and Subsidiaries (the Company) as of
December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), stockholders'
equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial
statement schedules listed in the Index at Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 23, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
107
Description of the
Matter
Reserves for Long Term Care Policy and Contract Benefits
The Company’s reserves for individual and group long-term care policy and contract benefits are
$14.0 billion of the $42.3 billion of Reserves for Future Policy and Contract Benefits on the
consolidated balance sheet as of December 31, 2022. The two primary categories of long-term care
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. Notes 1 and 6 to the
consolidated financial statements describe the accounting for these reserves.
Policy reserves are established based on a gross premium valuation method to estimate the
difference between projected future policy benefits and future premiums utilizing assumptions
established as of the most recent loss recognition. Claim reserves are established based on a tabular
reserve methodology representing assumptions reflecting the best estimate of the present value of
the liability for future claim payments and claim adjustment expenses. Management is required to
evaluate its long-term care reserves each period to determine if a reserve deficiency exists. There is
significant uncertainty in estimating long-term care reserves given the extended period over which
claims are paid and sensitivity of the estimate to assumptions, including morbidity, mortality, claims
incidence and resolutions, persistency, interest rates, and future premium rate increases.
Auditing the long-term care policy and contract benefits reserves was complex due to the highly
judgmental nature of the significant assumptions including morbidity, mortality, claims incidence
and resolutions, persistency, interest rates and future premium rate increases used in the
measurement process. The significant judgment and the sensitivity of the estimate to these
assumptions can have a material effect on the valuation of the liability.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of the
Company’s internal controls over the long-term care reserves process, including controls over the
review and approval of assumptions which incorporate the Company’s most recent experience.
To test long-term care policy and contract benefits liability we performed audit procedures, with the
assistance of our actuarial specialists, that included, among others, an evaluation of the
methodologies applied by management’s actuarial specialists with those methods used in prior
periods. We evaluated the significant assumptions used by management in determining the policy
and claims reserves by comparing the significant assumptions, including expected morbidity,
mortality, claims incidence and resolutions, persistency, interest rates, and future premium rate
increases to historical assumptions, prior actual experience, policyholder experience studies
performed by management, available industry information, observable market data, or
management’s estimates of prospective changes in these assumptions. In addition, we performed a
review of the historical results of the development of the estimate, assessed management’s annual
reserve adequacy test, and performed an independent recalculation of policy and contract benefit
reserves for a sample of contracts which we compared to the actuarial model used by management.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1999.
Chattanooga, Tennessee
February 23, 2023
108
CONSOLIDATED BALANCE SHEETS
Unum Group and Subsidiaries
Assets
Investments
Fixed Maturity Securities - at fair value (amortized cost of $37,825.2; $37,386.7;
allowance for credit losses of $—; $—)
$
Mortgage Loans (net of allowance for credit losses of $9.3; $8.3)
Policy Loans
Other Long-term Investments
Short-term Investments
Total Investments
Other Assets
Cash and Bank Deposits
Accounts and Premiums Receivable (net of allowance for credit losses of $32.5;
$34.2)
Reinsurance Recoverable (net of allowance for credit losses of $1.7; $2.3)
Accrued Investment Income
Deferred Acquisition Costs
Goodwill
Property and Equipment
Deferred Income Tax
Other Assets
December 31
2022
2021
(in millions of dollars)
34,840.8 $
2,435.4
3,601.2
1,440.1
1,394.8
43,712.3
43,336.0
2,560.4
3,662.9
1,203.0
1,388.0
52,150.3
119.2
75.0
1,482.1
10,218.6
615.0
2,252.3
347.6
451.7
449.8
1,786.3
1,519.9
10,919.3
602.7
2,207.9
352.2
462.7
—
1,825.6
Total Assets
$
61,434.9 $
70,115.6
See notes to consolidated financial statements.
109
CONSOLIDATED BALANCE SHEETS - Continued
Unum Group and Subsidiaries
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
Total Liabilities
Commitments and Contingent Liabilities - Note 14
Stockholders' Equity
Common Stock, $0.10 par
Authorized: 725,000,000 shares
Issued: 308,306,490 and 307,334,853 shares
Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Retained Earnings
Treasury Stock - at cost:110,551,977 and 104,820,670 shares
Total Stockholders' Equity
December 31
2022
2021
(in millions of dollars)
$
1,839.8 $
42,330.2
352.7
1,750.4
190.9
9.2
2.0
3,427.8
2,334.4
1,907.7
48,007.5
347.5
1,790.9
159.1
458.4
—
3,442.2
2,585.9
52,237.4
58,699.2
30.8
2,441.0
(2,756.6)
12,912.1
(3,429.8)
30.7
2,408.1
354.1
11,853.2
(3,229.7)
9,197.5
11,416.4
Total Liabilities and Stockholders' Equity
$
61,434.9 $
70,115.6
See notes to consolidated financial statements.
110
CONSOLIDATED STATEMENTS OF INCOME
Unum Group and Subsidiaries
Revenue
Premium Income
Net Investment Income
Net Investment Gain (Loss)
Other Income
Total Revenue
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits
Commissions
Interest and Debt Expense
Cost Related to Early Retirement of Debt
Deferral of Acquisition Costs
Amortization of Deferred Acquisition Costs
Compensation Expense
Other Expenses
Total Benefits and Expenses
Year Ended December 31
2022
2020
2021
(in millions of dollars, except share data)
$
9,623.4 $
2,122.2
(15.7)
261.1
11,991.0
9,481.0 $
2,213.2
76.7
242.9
12,013.8
9,378.1
2,360.7
1,199.1
224.2
13,162.1
6,936.7
1,086.4
188.5
4.2
(556.9)
591.0
1,089.5
1,020.2
10,359.6
7,598.6
1,038.1
185.0
67.3
(508.1)
586.1
975.2
1,008.6
10,950.8
8,972.9
1,057.3
188.2
—
(576.2)
606.1
953.2
996.6
12,198.1
Income Before Income Tax
1,631.4
1,063.0
964.0
Income Tax Expense (Benefit)
Current
Deferred
Total Income Tax Expense
473.5
(156.3)
317.2
212.8
26.0
238.8
(116.6)
287.6
171.0
Net Income
$
1,314.2 $
824.2 $
793.0
Net Income Per Common Share
Basic
Assuming Dilution
See notes to consolidated financial statements.
$
$
6.55 $
6.50 $
4.04 $
4.02 $
3.89
3.89
111
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unum Group and Subsidiaries
2022
Year Ended December 31
2021
(in millions of dollars)
2020
Net Income
$
1,314.2 $
824.2 $
793.0
Other Comprehensive Income (Loss)
Change in Net Unrealized Gain (Loss) on Securities Before
Adjustment (net of tax expense (benefit) of $(1,890.8); $(346.9);
$250.2)
Change in Adjustment to Deferred Acquisition Costs and Reserves
for Future Policy and Contract Benefits, Net of Reinsurance (net
of tax expense (benefit) of $1,100.8; $316.8; $(138.2))
Change in Net Gain (Loss) on Hedges (net of tax benefit of $19.2;
$9.8; $23.8)
Change in Foreign Currency Translation Adjustment (net of tax
expense (benefit) of $(0.1); $4.2; $(4.3))
Change in Unrecognized Pension and Postretirement Benefit
Costs (net of tax expense (benefit) of $18.9; $42.1; $(34.8))
Total Other Comprehensive Income (Loss)
(7,042.9)
(1,301.4)
983.0
4,056.9
1,195.9
(531.2)
(71.4)
(36.0)
(90.0)
(115.2)
(12.6)
20.3
61.9
(3,110.7)
134.0
(20.1)
(45.2)
336.9
Comprehensive Income (Loss)
$
(1,796.5) $
804.1 $
1,129.9
See notes to consolidated financial statements.
112
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unum Group and Subsidiaries
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
Balance at End of Year
Accumulated Other Comprehensive Income (Loss)
Balance at Beginning of Year
Other Comprehensive Income (Loss)
Balance at End of Year
Retained Earnings
Balance at Beginning of Year
Adjustment to Adopt Accounting Standard Update - Note 1
Balance at Beginning of Year, as Adjusted
Net Income
Dividends to Stockholders (per common share: $1.26; $1.17; $1.14)
Balance at End of Year
Treasury Stock
Balance at Beginning of Year
Purchases of Treasury Stock
Balance at End of Year
2022
Year Ended December 31
2021
(in millions of dollars)
2020
$
30.7 $
0.1
30.8
30.7 $
—
30.7
30.6
0.1
30.7
2,408.1
32.9
2,441.0
2,376.2
31.9
2,408.1
2,348.1
28.1
2,376.2
354.1
(3,110.7)
(2,756.6)
374.2
(20.1)
354.1
37.3
336.9
374.2
11,853.2
—
11,853.2
1,314.2
(255.3)
11,269.6
—
11,269.6
824.2
(240.6)
12,912.1
11,853.2
10,728.7
(18.9)
10,709.8
793.0
(233.2)
11,269.6
(3,229.7)
(200.1)
(3,429.8)
(3,179.7)
(50.0)
(3,229.7)
(3,179.7)
—
(3,179.7)
Total Stockholders' Equity at End of Year
$
9,197.5 $
11,416.4 $
10,871.0
See notes to consolidated financial statements.
113
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unum Group and Subsidiaries
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities
Change in Receivables
Change in Deferred Acquisition Costs
Change in Insurance Reserves and Liabilities
Change in Income Taxes
Change in Other Accrued Liabilities
Non-cash Components of Net Investment Income
Net Investment (Gain) Loss
Depreciation
Cash Related to Reinsurance Transaction
Amortization of the Cost of Reinsurance
Other, Net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturity Securities
Proceeds from Maturities of Fixed Maturity Securities
Proceeds from Sales and Maturities of Other Investments
Purchase of Fixed Maturity Securities
Purchase of Other Investments
Net Sales (Purchases) of Short-term Investments
Net Increase (Decrease) in Payables for Collateral on Investments
Net Purchases of Property and Equipment
Net Cash Used by Investing Activities
Cash Flows from Financing Activities
Short-term Debt Repayment
Issuance of Long-term Debt
Long-term Debt Repayment
Cost Related to Early Retirement of Debt
Issuance of Common Stock
Repurchase of Common Stock
Dividends Paid to Stockholders
Proceeds from Universal Life Policyholder Account Deposits
Payments for Universal Life Policyholder Account Withdrawals
Cash Received Related to Active Life Volatility Cover Agreement
Other, Net
Net Cash Used by Financing Activities
Net Increase (Decrease) in Cash and Bank Deposits
Cash and Bank Deposits at Beginning of Year
2022
Year Ended December 31
2021
(in millions of dollars)
2020
$
1,314.2 $
824.2 $
793.0
566.0
34.1
(282.0)
(58.8)
(113.9)
(247.0)
15.7
110.5
—
63.8
16.1
1,418.7
559.5
1,532.5
445.9
(2,835.3)
(482.9)
(22.6)
(50.8)
(102.2)
(955.9)
—
349.2
(364.0)
(3.6)
4.0
(200.1)
(254.2)
119.8
(72.0)
5.2
(2.9)
(418.6)
44.2
75.0
678.0
78.0
74.2
295.3
11.3
(254.7)
(76.7)
119.8
(456.8)
79.1
15.8
1,387.5
442.5
2,611.4
403.1
(4,106.3)
(606.8)
76.5
(50.7)
(110.3)
(1,340.6)
—
588.1
(500.0)
(62.8)
3.4
(50.0)
(239.4)
128.1
(80.7)
40.4
4.0
(168.9)
242.9
29.9
1,481.8
(31.3)
160.1
(120.5)
(1,199.1)
113.6
(1,087.2)
2.6
83.5
469.3
990.8
2,052.4
237.0
(3,169.6)
(440.6)
(133.1)
314.5
(119.1)
(267.7)
(400.0)
494.1
(80.0)
—
4.4
—
(231.9)
138.4
(74.3)
62.1
(1.5)
(88.7)
(122.0)
112.9
197.0
84.1
Cash and Bank Deposits at End of Year
$
119.2 $
75.0 $
197.0
See notes to consolidated financial statements.
114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unum Group and Subsidiaries
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 16). Intercompany transactions have been eliminated.
Description of Business: We are a leading provider of financial protection benefits in the United States, the United Kingdom,
and Poland. Our products include disability, life, accident, critical illness, dental and vision, and other related services. We
market our products primarily through the workplace.
We have three principal operating business segments: Unum US, Unum International, and Colonial Life. Our other reporting
segments are Closed Block and Corporate. 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.
In accordance with standard practice, we regularly review the methodology used in the development of all key estimates. As a
result of this review, in 2022, we updated our estimate of the unearned premium reserve for certain of our product lines to utilize
a gross unearned premium reserve rather than a net unearned premium reserve. The effect of this change in estimate was to
decrease 2022 premium income by $13.4 million and decrease commissions by $1.0 million. This resulted in a decrease to net
income of $9.8 million and a decrease to both basic and diluted earnings per share by $0.05.
Fixed Maturity Securities: Fixed maturity securities include long-term bonds and redeemable preferred stocks. Our fixed
maturity securities are classified as available-for-sale and reported at fair value. Changes in the fair value of available-for-sale
fixed maturity securities, except for amounts related to impairment and credit losses recognized in earnings, 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. Realized investment gains or losses are based upon specific identification of the
investments sold.
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. 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. For fixed maturity securities on which collection of investment income is
uncertain, we discontinue the accrual of investment income and recognize investment income when interest and dividends are
received. 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.
In determining when a decline in fair value below amortized cost of a fixed maturity security is a credit loss, we evaluate
available information, both positive and negative, in reaching our conclusions. In particular, we consider the strength of the
issuer's balance sheet, its debt obligations and near-term funding requirements, cash flow and liquidity, the profitability of its
core businesses, the availability of marketable assets which could be sold to increase liquidity, its industry fundamentals and
regulatory environment, and its access to capital markets. Although all available and applicable factors are considered in our
analysis, our expectation of recovering the entire amortized cost basis of the security, whether we intend to sell the security,
whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost, and whether
the security is current on principal and interest payments are the most critical factors in determining whether impairments
represent credit losses. The significance of the decline in value is also an important factor, but we generally do not record an
impairment loss based solely on this factor, since often other more relevant factors will impact our evaluation of a security.
For securities with a decline in fair value below amortized cost which we intend to sell or more likely than not will be required to
sell before recovery in value, the amortized cost of the investment is written down to fair value through earnings, and an
impairment loss is recognized in the current period. For securities that we believe are impaired and which we do not intend to
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 1 - Significant Accounting Policies - Continued
sell and it is not more likely than not that we will be required to sell before recovery in value, we calculate an allowance for
credit losses recognized in earnings which generally represents the difference between the amortized cost of the security and the
present value of our best estimate of cash flows expected to be collected, discounted using the effective interest rate implicit in
the security at the date of acquisition and limited by the difference between amortized cost and fair value of the security. For
fixed maturity securities for which we have recognized an allowance for credit loss through earnings, if through subsequent
evaluation there is a significant increase in expected cash flows, the allowance is reduced and is recognized as a reduction to
credit losses in the current period. When an allowance for credit losses on a fixed maturity security is recognized, we designate
non-accrual status for those securities. We reverse all previously accrued interest through interest income and use a cash basis
method for recognizing any future payments received. See Notes 2 and 3.
Mortgage Loans: Mortgage loans are generally held for investment and are carried at amortized cost less an allowance for
expected credit losses. Interest income is accrued on the principal amount of the loan based on the loan's contractual interest
rate. Prepayment penalties are recognized as investment income when received. For mortgage loans on which collection of
interest income is uncertain, we discontinue the accrual of interest and recognize it in the period when an interest payment is
received. We typically do not resume the accrual of interest on mortgage loans on nonaccrual status until there are significant
improvements in the underlying financial condition of the borrower. We consider a loan to be delinquent if full payment is not
received in accordance with the contractual terms of the loan.
We evaluate each of our mortgage loans individually for impairment and assign an internal credit quality rating based on a
comprehensive rating system used to evaluate the credit risk of the loan. Although all available and applicable factors are
considered in our analysis, loan-to-value and debt service coverage ratios are the most critical factors in determining impairment.
We estimate an allowance for credit losses that we expect to incur over the life of our mortgage loans using a probability of
default method. For each loan, we estimate the probability that the loan will default before its maturity (probability of default)
and the amount of the loss if the loan defaults (loss given default). These two factors result in an expected loss percentage that is
applied to the amortized cost of each loan to determine the expected credit loss. As we are the original underwriter of the
mortgage loans, the amortized cost generally equals the principal amount of the loan. We measure losses on defaults of our
mortgage loans as the excess amortized cost of the mortgage loan over the fair value of the underlying collateral in the event that
we foreclose on the loan or over the expected future cash flows of the loan if we retain the mortgage loan until payoff. We do
not purchase mortgage loans with existing credit impairments.
In estimating the probability of default, we consider historical experience, current market conditions, and reasonable and
supportable forecasts about the future market conditions. We utilize our historical loan experience in combination with a large
third-party industry database for a period of time that aligns with the average life of our loans based on the maturity dates of the
loans and prepayment experience. Our model utilizes an industry database of the historical loss experience based on our actual
portfolio characteristics such as loan-to-value, debt service coverage, collateral type, geography, and late payment history. In
addition, because we actively manage our portfolio, we may extend the term of a loan in certain situations and will accordingly
extend the maturity date in the estimate of probability of default. In estimating the loss given default, we primarily consider the
type and value of collateral and secondarily the expected liquidation costs and time to recovery.
The primary market factors that we consider in our forecast of future market conditions are gross domestic product,
unemployment rates, interest rates, inflation, commercial real estate values, household formation, and retail sales. We also
forecast certain loan specific factors such as growth in the fair value and net operating income of collateral by property type. We
include our estimate of these factors over a two-year period and for the remainder of the loans’ estimated lives, adjusted for
estimated prepayments. Past the two-year forecast period, we revert to the historical assumptions ratably by the end of the fifth
year of the loan after which we utilize only historical assumptions.
We utilize various scenarios to estimate our allowance for expected losses ranging from a base case scenario that reflects normal
market conditions to a severe case scenario that reflects adverse market conditions. We will adjust our allowance each period to
utilize the scenario or weighting of the scenarios that best reflects our view of current market conditions. Additions and
reductions to our allowance for credit losses on mortgage loans are reported as a component of net investment gains and losses.
See Note 3.
116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 1 - Significant Accounting Policies - Continued
Policy Loans: Policy loans are presented at the 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 $3,312.5 million and
$3,373.7 million of policy loans ceded to reinsurers at December 31, 2022 and 2021, respectively.
Other Long-term Investments: Other long-term investments are comprised primarily of private equity partnerships, real estate,
perpetual preferred stock, common stock, and tax credit partnerships.
Our investments in private equity partnerships are passive in nature and represent funds that are primarily invested in private
credit, private equity, and real assets. We account for our investments in these partnerships using either the equity method or at
fair value through net income depending on the level of ownership and the degree of our influence over partnership operating
and financial policies. For investments in partnerships accounted for under the equity method, we report our investments at our
share of the partnership's net asset value (NAV) and record our portion of partnership earnings as a component of net investment
income. For investments in partnerships accounted for at fair value through net income, we also report our investments at our
share of the partnership's NAV as a practical expedient for fair value with increases or decreases recorded as a component of net
investment income. Distributions received from the funds arise from income generated by the underlying investments as well as
the liquidation of the underlying investments and there is generally not a public market for these investments.
Investment real estate is primarily comprised of property held for the production of income and property held for sale. Property
held for the production of income is carried at cost less accumulated depreciation and any write-downs to fair value for
impairment losses. Depreciation is recorded on a straight-line basis over the estimated useful life of the asset. A review for
impairment is made whenever events or circumstances indicate that the carrying value may not be recoverable. An impairment
loss is recognized when the carrying value of the property exceeds the expected undiscounted cash flows generated from the
property, at which point the carrying value is written down to an estimated fair value. Real estate held for sale is carried at the
lower of depreciated cost or fair value less estimated selling costs and is not further depreciated once classified as such.
Our perpetual preferred stocks are valued at fair value, based on quoted market prices, where available. For preferred stocks not
actively traded, fair values are estimated using values obtained from independent pricing services. Our investments in common
stock are valued at fair value. Our shares of Federal Home Loan Bank (FHLB) common stock are carried at cost, which
approximates fair value.
Tax credit partnerships in which we have invested were formed for the purpose of investing in the construction and rehabilitation
of low-income housing. Because the partnerships are structured such that there is no return of principal, the primary sources of
investment return from our tax credit partnerships are tax credits and tax benefits derived from passive losses on the investments,
both of which may exhibit variability over the life of the investment. These partnerships are accounted for using either the
proportional or the effective yield method, depending primarily on whether the tax credits are guaranteed through a letter of
credit, a tax indemnity agreement, or another similar arrangement. Tax credits received from these partnerships are reported in
our consolidated statements of income as either a reduction of premium tax or a reduction of income tax. The amortization of
the principal amount invested in these partnerships is reported as a component of either premium tax or income tax.
See Notes 2 and 3 for further discussion of our other long-term investments.
Short-term Investments: Short-term investments are carried at cost. Short-term investments include investments maturing
within one year of purchase, such as corporate commercial paper and Treasury bills, bank term deposits, and other cash accounts
and cash equivalents earning interest.
Cash and Bank Deposits: Cash and bank deposits include cash on hand and non-interest bearing cash and deposit accounts.
Derivative Financial Instruments: Derivative financial instruments (including certain derivative instruments embedded in other
contracts) are recognized as either other long-term investments or other liabilities in our consolidated balance sheets and are
reported at fair value. The accounting for 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 for hedge accounting, at the inception of the
hedging transaction, we formally document the risk management objective and strategy for undertaking the hedging transaction,
as well as the designation of the hedge as either a fair value hedge or a cash flow hedge. Included in this documentation is how
the hedging instrument is expected to hedge the designated risk(s) related to specific assets or liabilities on the balance sheet or
117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 1 - Significant Accounting Policies - Continued
to specific forecasted transactions as well as a description of the method that will be used to retrospectively and prospectively
assess the hedging instrument's effectiveness.
A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk(s) of
the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the designated
hedging relationship, using qualitative and quantitative methods. Qualitative methods include comparison of critical terms of the
derivative to the hedged item. Quantitative methods include regression or other statistical analysis of changes in fair value or
cash flows associated with the hedge relationship.
Changes in the fair value of a derivative designated as a fair value hedge and changes in the fair value of the hedged item
attributable to the risk being hedged are recognized in earnings as a component of net investment gain or loss during the period
of change in fair value. For gains or losses on the derivative instrument that are excluded from the assessment of hedge
effectiveness, those gains and losses are recognized in other comprehensive income or loss and amortized into earnings in the
same income statement line as the related hedged item. The gain or loss on the termination of a fair value hedge is recognized in
earnings as a component of net investment gain or loss during the period in which the termination occurs. When interest rate
swaps are used in hedge accounting relationships, periodic settlements are recorded in the same income statement line as the
related settlements of the hedged items.
Changes in the fair value of a derivative designated as a cash flow hedge are reported in other comprehensive income and
reclassified into earnings and reported on the same income statement line item as the hedged item and in the same period or
periods during which the hedged item affects earnings. The gain or loss on the termination of an effective cash flow hedge is
reported in other comprehensive income and reclassified into earnings and reported on the same income statement line item as
the hedged item and in the same period or periods during which the hedged item affects earnings.
Gains or losses on the termination of ineffective fair value or cash flow hedges are reported in earnings as a component of net
investment gain or loss. 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 as a
component of net investment gain or loss. In the event a hedged item is disposed of subsequent to the termination of the hedging
transaction, we reclassify any remaining gain or loss on the hedge out of accumulated other comprehensive income into earnings
as a component of the same income statement line item wherein we report the gain or loss on disposition of the hedged item.
For a derivative not designated as a hedging instrument, changes in the fair value of the derivative, together with the payment of
periodic fees, if applicable, are recognized in the same income statement line item as the hedged item during the period of
change in fair value.
Cash flow activity from the settlement of derivative contracts is reported in the consolidated statements of cash flows as a
component of proceeds from sales and maturities of other investments.
In our consolidated balance sheets, we do not offset fair value amounts recognized for derivatives executed with the same
counterparty under a master netting agreement and fair value amounts recognized for the right to reclaim cash collateral or the
obligation to return cash collateral arising from those master netting agreements. See Notes 2, 3, and 4.
Fair Value Measurement: Certain assets and liabilities are reported at fair value in our consolidated balance sheets and in our
notes to our consolidated financial statements. We define fair value 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. Therefore, fair value
represents an exit price, not an entry price. The exit price objective applies regardless of our intent and/or ability to sell the asset
or transfer the liability at the measurement date. Assets or liabilities with readily available actively 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. When actively quoted prices are not available, fair values are based on quoted prices
in markets that are not active, quoted prices for similar but not identical assets or liabilities, or other observable inputs. If
observable inputs are not available, unobservable inputs and/or adjustments to observable inputs requiring management
judgment are used to determine fair value. We categorize our assets and liabilities measured at estimated fair value into a three-
level hierarchy, based on the significance of the inputs. The fair value hierarchy gives the highest priority to inputs which are
118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 1 - Significant Accounting Policies - Continued
unadjusted and represent quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). See Note 2.
Allowance for Credit Losses on Premiums Receivable: We establish an allowance for credit losses on premiums receivable,
which is deducted from the gross amount of our receivable balance, to present the net amount we expect to collect on this asset.
The allowance is forward-looking in nature and is calculated based on considerations regarding both historical events and future
expectations. Periodic changes in the allowance are recorded through earnings.
The allowance on our premiums receivable is primarily determined using an aging analysis as well as historical lapse and
delinquency rates by line of business, adjusted for key factors that may impact our future expectation of premium receipts such
as changes in customer demographics, business practices, economic conditions, and product offerings. We write off premiums
receivable amounts when determined to be uncollectible, which is based on various factors, including the aging of premiums
receivable past the due date and specific communication with customers. At December 31, 2022 and 2021, the allowance for
expected credit losses on premium receivables was $32.5 million and $34.2 million, respectively, on gross premium receivables
of $557.6 million and $530.7 million, respectively. The allowance decreased $1.7 million during the year ended December 31,
2022, and was driven primarily by improvements in the age of premiums receivable. The allowance decreased $4.6 million
during the year ended December 31, 2021, driven primarily by improvements in the age of premiums receivable and
improvements in unemployment levels.
Deferred Acquisition Costs: Incremental direct costs associated with the successful acquisition of new or renewal insurance
contracts 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 in subsequent years.
Deferred acquisition costs related to non-interest sensitive policies are amortized in proportion to the premium income we expect
to receive over the lives of the policies. 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. Deviations from projections result in a change to the rate of amortization in the period
during which such events occur. Generally, the amortization periods for these policies approximate the estimated lives of the
policies.
For certain products, policyholders can elect to modify product benefits, features, rights, or coverages by exchanging a contract
for a new contract or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a
contract. These transactions are known as internal replacement transactions. 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 and recoverability testing is performed on an annual basis, or more frequently if appropriate, using best
estimate assumptions as to future experience as of the date of the test. Insurance contracts are grouped for each major product
line within a segment when we perform the loss recognition and recoverability tests. If loss recognition or recoverability testing
indicates that deferred acquisition costs are not recoverable, the deficiency is charged to expense.
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 on an annual basis, 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. If the fair value of the reporting unit to which the goodwill
relates is less than the carrying amount of the reporting unit, an impairment charge is recognized for the amount by which the
119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 1 - Significant Accounting Policies - Continued
carrying amount exceeds the fair value of the reporting unit in an amount not to exceed the total amount of goodwill allocated to
the reporting unit.
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 $1,328.7
million and $1,259.6 million as of December 31, 2022 and 2021, respectively.
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
non-interest sensitive insurance policies and estimated future gross profits from surrender charges, mortality margins, investment
returns, and expense margins for interest sensitive insurance policies. The value of business acquired, which is included in other
assets in our consolidated balance sheets, was $62.9 million and $73.1 million at December 31, 2022 and 2021, respectively.
The accumulated amortization for value of business acquired was $150.3 million and $157.7 million as of December 31, 2022
and 2021, respectively.
The amortization of value of business acquired, which is included in other expenses in the consolidated statements of income,
was $4.9 million, $5.7 million, and $6.1 million for the years ended December 31, 2022, 2021, and 2020, 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 non-interest sensitive 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.
Reserves for Future Policy and Contract Benefits: Policy reserves represent future policy and contract benefits for claims not
yet incurred. Policy reserves for non-interest sensitive life and accident and health products are 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. Discount rate assumptions are based on actual and expected net investment returns.
Persistency assumptions are based on our actual historical experience adjusted for future expectations. Claim incidence and
claim resolution rate assumptions related to morbidity and mortality 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 are developed 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 resulting from customer deposits and
interest credited less cost of insurance, policy administration expenses, surrender charges, and customer withdrawals.
Policy reserves require ongoing loss recognition testing. 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. This becomes the new basis for policy reserves going forward, subject to future loss
recognition testing.
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 and long-term care 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
120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 1 - Significant Accounting Policies - Continued
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 for which assumptions are generally established and locked in at the time of
policy issuance, claim reserves are subject to revision as current claim experience and projections of future factors affecting
claim experience change. Claim reserves do not include a provision for adverse deviation. See Note 6.
Other Policyholders' Funds: Other 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 life 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 adjustments to our deferred taxes
resulting from tax rate changes through income as of the date of enactment. 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. We record tax expense related to Global Intangible Low-Taxed Income in the
period in which it is incurred. We follow an aggregate portfolio approach to release disproportionate tax effects from
accumulated other comprehensive income upon disposal of an entire business segment's portfolio. See Note 7.
Short-term and Long-term Debt: Debt is generally carried at the unpaid principal balance, net of unamortized discount or
premium and deferred debt issuance costs. Short-term debt consists of debt due within the next twelve months, including that
portion of debt otherwise classified as long-term. The amortization of the original issue discount or premium as well as deferred
debt issuance costs are recognized as a component of interest expense over the period the debt is expected to be outstanding.
The carrying amount of long-term debt that is part of a fair value hedge program includes an adjustment to reflect the effect of
the change in fair value attributable to the risk being hedged. Net interest settlements for fair value hedges on our long-term debt
are recognized as a component of interest expense. See Note 8.
Right-of-Use Asset (ROU) and Lease Liability: ROU assets represent our right to use an underlying asset for a specified lease
term and are included in other assets in our consolidated balance sheet. Lease liabilities represent the present value of lease
payments that we are obligated to pay arising from a lease and are included in other liabilities in our consolidated balance sheet.
We determine if an arrangement is a lease at inception through a formal process that evaluates our right to control the use of an
identified asset for a period of time in exchange for consideration. We account for the lease and non-lease components of our
building leases separately and have elected to use the available practical expedient to account for the lease and non-lease
components of our equipment leases as a single component. All of our leases are classified as operating. For each operating
lease, we calculate a lease liability at commencement date based on the present value of lease payments over the lease term and a
corresponding ROU asset, adjusted for lease incentives. We do not recognize right-of-use assets and lease liabilities that arise
from short-term leases for any class of underlying asset.
We consider the likelihood of renewal in determining the lease terms for the calculation of the ROU asset and lease liability. As
most of our leases do not provide an implicit rate of interest, we use our incremental borrowing rate based on the information
available at commencement date in determining the present value of lease payments. We use the implicit rate of interest when
readily determinable.
Operating lease cost is calculated on a straight-line basis over the lease term and is included in other expenses in our
consolidated statements of income. We amortize the ROU asset over the lease term on a pattern determined by the difference
between the straight-line lease liability expense and the accretion of the imputed interest calculated on the lease liability. See
Note 15.
Treasury Stock and Retirement of Common Stock: Treasury stock is reflected as a reduction of stockholders' equity at cost.
When shares are retired, the par value is removed from common stock, and the excess of the repurchase price over par is
allocated between additional paid-in capital and retained earnings. See Note 10.
121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 1 - Significant Accounting Policies - Continued
Revenue Recognition: Our non-interest sensitive 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.
Fees from our leave management services and administrative-services only (ASO) business are reported as other income when
services are rendered.
Reinsurance: We routinely enter into reinsurance agreements with other insurance companies to spread risk and thereby limit
losses from large exposures. For each of our reinsurance agreements, we determine if the agreement provides indemnification
against loss or liability relating to insurance risk in accordance with applicable accounting standards. If we determine that a
reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, we
record the agreement using the deposit method of accounting.
Reinsurance activity is accounted for on a basis consistent with the terms of the reinsurance contracts and the accounting used
for the original policies issued. Premium income and benefits and change in reserves for future benefits are presented in our
consolidated statements of income net of reinsurance ceded. Ceded liabilities for policy and contract benefits, future policy and
contract benefits, and unearned premiums are reported on a gross basis in our consolidated balance sheets, as are ceded policy
loans. Our reinsurance recoverable includes the balances due from reinsurers under the terms of the reinsurance agreements for
these ceded balances as well as settlement amounts currently due.
Where applicable, gains or costs recognized on reinsurance transactions are generally deferred and amortized into earnings based
upon expected future premium income for non-interest sensitive insurance policies and estimated future gross profits for interest
sensitive insurance policies. Gains or costs recognized on reinsurance transactions for non-interest sensitive products for which
we no longer receive premiums are generally deferred and amortized into earnings based upon expected claim reserve patterns.
The cost of reinsurance included in other assets in our consolidated balance sheets at December 31, 2022 and 2021 was $713.3
million and $777.1 million. The deferred gain on reinsurance included in other liabilities in our consolidated balance sheets at
December 31, 2022 and 2021 was $3.1 million and $3.7 million, respectively.
Under ceded reinsurance agreements wherein we are not relieved of our legal liability to our policyholders, if the assuming
reinsurer is unable to meet its obligations, we remain contingently liable. We evaluate the financial condition of reinsurers and
monitor concentration of credit risk to minimize this exposure. We may also require assets in trust, letters of credit, or other
acceptable collateral to support our reinsurance recoverable balances. We estimate an allowance for expected credit losses for
our reinsurance recoverable balance using a probability of default approach which incorporates key inputs and assumptions
regarding market factors, counterparty credit ratings, and collateral received. When calculating our allowance, we apply these
market factors to the net amount of our credit exposure, which considers collateral arrangements such as letters of credit and trust
accounts. We evaluate the factors used to determine our allowance on a quarterly basis to consider material changes in our
assumptions and make adjustments accordingly. At December 31, 2022 and 2021, the allowance for expected credit losses on
reinsurance recoverables was $1.7 million and $2.3 million, respectively. The allowance decreased $0.6 million and $9.4 million
during the years ended December 31, 2022, and 2021, respectively. The decreases are primarily due to changes in the
composition of the related receivable. See Note 12.
Premium Tax Expense: Premium tax expense is included in other expenses in the consolidated statements of income. For the
years ended December 31, 2022, 2021, and 2020, premium tax expense was $169.3 million, $166.0 million, and $175.5 million,
respectively.
Stock-Based Compensation: The cost of stock-based compensation is generally measured based on the grant-date fair value of
the award. The Black-Scholes options valuation model is used for estimating the fair value of stock options, and the Monte-
Carlo valuation model is used for estimating the fair value of performance units. Restricted stock units and stock success units
are valued based on the fair value of common stock at the grant date. Stock-based awards are expensed over the requisite service
122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 1 - Significant Accounting Policies - Continued
period, or for performance units over the requisite service period, or remaining service period, if and when it becomes probable
that the performance conditions will be satisfied, with an offsetting increase to additional paid-in capital in stockholders' equity.
Forfeitures of stock-based awards are recognized as they occur. See Note 11.
Earnings Per Share: We compute basic earnings per share by dividing net income by the weighted average number of common
shares outstanding for the period. Earnings per share assuming dilution is computed by dividing net income by the weighted
average number of shares outstanding for the period plus the shares representing the dilutive effect of stock-based awards. In
computing earnings per share assuming dilution, only potential common shares resulting from stock-based awards that are
dilutive (those that reduce earnings per share) are included. We use the treasury stock method to account for the effect of
outstanding stock options and nonvested stock awards on the computation of earnings per share assuming dilution. See Note 10.
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 dates. The translation gain or loss is generally
reported in accumulated other comprehensive income, net of income tax. We do not provide for deferred taxes to the extent
unremitted foreign earnings are deemed permanently invested.
Accounting for Participating Individual Life Insurance: Participating policies issued by one of 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 assets of the PFA were $250.2 million and $297.7
million at December 31, 2022 and 2021, respectively.
123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Date of
Adoption
Effect on Financial Statements
January 1, 2022 The adoption of this update did not have
an effect on our financial position or
results of operations, and did not expand
our disclosures.
Date of
Adoption
Effect on Financial Statements
January 1, 2021 The adoption of this update did not have
a material effect on our financial position
or results of operations.
Note 1 - Significant Accounting Policies - Continued
Accounting Updates Adopted in 2022:
Standard
Description
The amendments in this update simplified
the accounting for convertible instruments
by removing certain separation models in the
guidance related to convertible instruments
and expanded related disclosure
requirements. The amendments also revised
the requirements for a contract or embedded
derivative that is potentially settled in an
entity's own stock to be classified as equity
and also amended certain guidance related to
the computations of earnings per share for
convertible instruments and contracts in an
entity's own stock. This guidance was
applied in the period of adoption.
ASU 2020-06,
Debt—Debt with
Conversion and
Other Options
(Subtopic
470-20) and
Derivatives and
Hedging—
Contracts in
Entity's Own
Equity (Subtopic
815-40):
Accounting for
Convertible
Instruments and
Contracts in an
Entity's Own
Equity
Accounting Updates Adopted in 2021:
Standard
Description
ASU 2019-12,
Income Taxes
(Topic 740):
Simplifying the
Accounting for
Income Taxes
The amendments in this update simplified
the accounting for income taxes by
removing certain exceptions in the guidance
related to the following: 1. losses in
continuing operations when there is income
in other items, 2. foreign subsidiaries
becoming equity method investments and
vice versa, and 3. year-to-date interim period
losses exceeding anticipated loss for the
year. The amendments also simplified the
accounting for income taxes related to the
following: 1. franchise taxes partially based
on income, 2. step up in the tax basis of
goodwill, 3. allocation of tax expense to
entities not subject to tax, 4. enacted changes
in tax law or rates in interim periods, and 5.
employee stock ownership programs and
investments in qualified affordable housing
projects accounted for using the equity
method.
124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Date of
Adoption
Effect on Financial Statements
January 1, 2020 The adoption of this update did not have
an effect on our financial position or
results of operations.
The adoption of this update modified our
disclosures but did not have an impact on
our financial position or results of
operations.
December 31,
2018 for the
removal and
modification of
certain
disclosures and
January 1, 2020
for the addition
of certain
disclosures.
Note 1 - Significant Accounting Policies - Continued
Accounting Updates Adopted in 2020:
Standard
Description
ASU 2017-04,
Intangibles—
Goodwill and
Other (Topic
350): Simplifying
the Test for
Goodwill
Impairment
ASU 2018-13,
Fair Value
Measurement
(Topic 820):
Disclosure
Framework—
Changes to the
Disclosure
Requirements for
Fair Value
Measurement
This update eliminated the requirement to
calculate the implied fair value of goodwill
(the second step in the former two-step test)
to measure a goodwill impairment charge.
Instead, entities should perform the goodwill
impairment test by comparing the fair value
of a reporting unit with its carrying amount
and recognize an impairment charge for the
excess of the carrying amount over the fair
value, with the loss not to exceed the total
amount of goodwill allocated to that
reporting unit. This guidance was applied in
the period of adoption.
This update amended the fair value
measurement guidance by removing or
clarifying certain existing disclosure
requirements, while also adding new
disclosure requirements. Specifically, this
update removed certain disclosures related to
Level 1 and Level 2 transfers and removed
the discussion regarding valuation processes
of Level 3 fair value measurements. The
update modified guidance related to
investments in certain entities that calculate
net asset value to explicitly require
disclosure regarding timing of liquidation of
the investee's assets and timing of
redemption restrictions. The update added
disclosures around the changes in unrealized
gains and losses in other comprehensive
income for recurring Level 3 investments
held at the end of the reporting period and
adds disclosures regarding certain
unobservable inputs on Level 3 fair value
measurements. The guidance was applied
both retrospectively and prospectively,
depending on the specific requirement of the
update.
125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 1 - Significant Accounting Policies - Continued
Date of
Adoption
December 31,
2020
Effect on Financial Statements
The adoption of this update modified our
disclosures but did not have an impact on
our financial position or results of
operations.
January 1, 2020 The adoption of this update resulted in a
cumulative-effect reduction to retained
earnings of $18.9 million with a
corresponding decrease to mortgage
loans of $8.3 million, a decrease to
accounts and premiums receivable of
$13.5 million and a decrease to deferred
income tax of $5.0 million. There were
also immaterial impacts to reinsurance
recoverable and other liabilities.
Standard
ASU 2018-14,
Compensation—
Retirement
Benefits—
Defined Benefit
Plans—General
(Subtopic
715-20):
Disclosure
Framework—
Changes to the
Disclosure
Requirements for
Defined Benefit
Plans
ASU 2018-19,
Codification
Improvements to
Topic 326,
Financial
Instruments—
Credit Losses
Description
This update amends the defined benefit
pension and other postretirement benefit
guidance by removing or clarifying certain
existing disclosure requirements, while also
adding new disclosure requirements.
Specifically, this update removes the
requirement to disclose the effects of a one-
percentage point change in the assumed
healthcare cost trend and the requirement to
disclose amounts in accumulated other
comprehensive income expected to be
recognized as part of net periodic benefit
cost of the next year. This update adds a
requirement to describe the reasons for
significant gains and losses related to
changes in the benefit obligation for the
period. The update also clarifies that the
projected benefit obligation (PBO) and
accumulated benefit obligation (ABO) and
fair value of plan assets are to be disclosed
for plans with PBOs or ABOs in excess of
plan assets. The guidance was applied
retrospectively.
This update amended the guidance on the
impairment of financial instruments. The
update added an impairment model known
as the current expected credit loss model that
is based on expected losses rather than
incurred losses and will generally result in
earlier recognition of allowances for losses.
The current expected credit loss model
applies to financial instruments such as
mortgage loans, fixed maturity securities
classified as held-to-maturity, and certain
receivables. The update also modified the
other-than-temporary impairment model
used for available-for-sale fixed maturity
securities such that credit losses are
recognized as an allowance rather than as a
reduction in the amortized cost of the
security. The reversal of previously
recognized credit losses on available-for-sale
fixed maturity securities is allowed under
specified circumstances. Additional
disclosures are also required, including
information used to develop the allowance
for losses. The guidance was applied using a
modified retrospective approach through a
cumulative-effect adjustment to retained
earnings as of the beginning of the period of
adoption. For available-for-sale fixed
maturity securities, the update was applied
prospectively. Other-than-temporary
impairment losses recognized on available-
for-sale fixed maturity securities prior to
adoption of the update cannot be reversed.
This guidance was applied in the period of
adoption.
126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 1 - Significant Accounting Policies - Continued
Accounting Updates Outstanding:
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting and related amendments
The amendments in this update provide optional guidance, for a limited period of time, to ease the potential burden in accounting
for and recognizing the effects of reference rate reform on financial reporting. The guidance allows for various practical
expedients and exceptions when applying GAAP to contracts, hedging relationships, and other transactions affected either by
discontinued rates as a direct result of reference rate reform or a market-wide change in interest rates used for discounting,
margining or contract price alignment, if certain criteria are met. Specifically, the guidance provides certain practical expedients
for contract modifications, fair value hedges, and cash flow hedges, and also provides certain exceptions related to changes in the
critical terms of a hedging relationship. The guidance also allows for a one-time election to sell or transfer debt securities that
were both classified as held-to-maturity prior to January 1, 2020 and reference a rate affected by the reform.
The adoption of this update is permitted as of the beginning of the interim period that includes March 12, 2020 (the issuance date
of the update), or any date thereafter, through December 31, 2024, at which point the guidance will sunset. We do not anticipate
needing to adopt this guidance, but we will continue to monitor our contracts and hedging relationships throughout the adoption
period.
ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration
Contracts and related amendments
This update significantly amends the accounting and disclosure requirements for long-duration insurance contracts. These
changes include a requirement to review, and if necessary, update cash flow assumptions used to measure the liability for future
policy benefits for traditional and limited-payment contracts at least annually, with changes recognized in earnings. In addition,
an entity will be required to update the discount rate assumption at each reporting date using a yield that is reflective of an upper-
medium grade fixed-income instrument, with changes recognized in other comprehensive income (loss) (OCI). These changes
result in the elimination of the provision for risk of adverse deviation and premium deficiency (or loss recognition) testing. The
update also requires that an entity measure all market risk benefits associated with deposit contracts at fair value, with changes
recognized in earnings except for the portion attributable to a change in the instrument-specific credit risk, which is to be
recognized in OCI. This update also simplifies the amortization of deferred acquisition costs by requiring amortization on a
constant level basis over the expected term of the related contracts. Deferred acquisition costs are required to be written off for
unexpected contract terminations but are no longer subject to an impairment test. Significant additional disclosures will also be
required, which include disaggregated rollforwards of certain liability balances and the disclosure of qualitative and quantitative
information about expected cash flows, estimates, and assumptions. The application of this guidance will vary based upon the
specific requirements of the update but will generally result in either a modified retrospective or full retrospective approach with
changes applied as of the beginning of the earliest period presented. Early adoption is permitted. The update is effective for
periods beginning January 1, 2023.
We will adopt this update effective January 1, 2023 using the modified retrospective approach with changes applied as of the
beginning of the earliest period presented or January 1, 2021, also referred to as the transition date. We are continuing to
evaluate the effects of implementing this update. The most significant impact at the transition date will be the requirement to
update the discount rate assumption to reflect an upper-medium grade fixed-income instrument, which will be generally
equivalent to a single-A interest rate matched to the duration of our insurance liabilities and will result in a decrease to
accumulated other comprehensive income (loss) (AOCI) within our total stockholders’ equity balance. After the transition date,
we will be required to update the discount rate each subsequent reporting period with changes recorded in OCI and expect that
this could have a material impact on OCI.
127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 1 - Significant Accounting Policies - Continued
Our modified retrospective adoption of this update during the first quarter of 2023 will result in a decrease to AOCI as of the
transition date, January 1, 2021, of approximately $6.7 billion. We expect a decrease to AOCI at December 31, 2021 in a range
from approximately $5.4 billion to $5.6 billion. We expect a decrease to AOCI at December 31, 2022 in a range from
approximately $0.6 billion to $0.8 billion.
The decrease in AOCI in our recast of 2021 and 2022 is driven primarily by the difference between the discount rate applied
under current GAAP, which is based on an expected investment yield from our current investment strategy, and the single-A
discount rate that will be required as a part of the update. The most significant impact relates to our longest duration products.
Our investment strategy reflects the illiquid nature of the majority of our liability cash flows and, as a result, the yields in our
investment portfolios supporting the cash outflows required for these products are generally higher than a single-A yield. In
addition, the discount rates currently applied to reserves for our longest duration products, such as long-term care, include an
assumption for long-term yields rising to more historical levels.
Our modified retrospective adoption is expected to result in an increase to net income during 2021 and 2022. We expect the
increase in 2021 net income to be between approximately $145 million and $175 million, or between $0.70 and $0.85 per diluted
per common share. We expect the increase in 2022 net income to be between approximately $80 million and $110 million, or
$0.40 and $0.55 per diluted common share.
The net favorable impact of the recast of our net income for 2021 and 2022 shown above is due primarily to the following
changes:
•
•
•
•
•
•
Updating the lifetime cohort net premium ratios (lifetime loss ratio) for actual experience each reporting period will
generally cause earnings patterns to be more consistent from period to period, with variances in experience reflected in
earnings over the cohort lifetime. This will result in an unfavorable impact to income for 2021 and 2022.
Alignment of amortization of deferred acquisition costs to a constant level basis and modification of amortization
periods to reflect the expected term of the related contracts could result in either higher or lower income for the affected
product lines. This will result in a net favorable impact to income for 2021 and 2022.
Accelerated recognition of the provision for adverse deviation or other differences from current best estimate values for
policies issued prior to the transition date and due to not establishing the provision for policies issued on or after the
transition date will generally result in higher income most notably in the initial years after the transition date. This will
result in a favorable impact to income for 2021 and 2022.
Establishing reserves for claims incurred on or after the transition date at interest rates prescribed by the update could
result in either higher or lower income for the affected product lines depending on the policy issue date and the interest
rate environment at that time. This will result in an unfavorable impact to income for 2021 and a favorable impact to
income for 2022.
Updating cash flow assumptions could result in either higher or lower income. This will result in a favorable impact to
income for 2021 and 2022.
Applying non-contemporaneous reinsurance accounting to the second phase of our Closed Block individual disability
reinsurance transaction which was completed in the first quarter of 2021. The primary impacts of this change are:
◦
◦
Reversing the increase in benefits and change in reserves for future benefits resulting from the realization of
previously unrealized investment gains and losses previously recorded in AOCI that will be removed as of the
transition date which will have a favorable impact on income for 2021.
Remeasuring the ceded reserves as a separate cohort of reserves at interest rates prescribed by the update and
the resulting change to the cost of reinsurance. The differential in the discount rate applied to the direct and
ceded cohorts of business will result in an unfavorable impact to income for 2021 and 2022 partially offset by
a decrease in the amortization of the cost of reinsurance as a result of a lower cost of reinsurance.
We do not have products with market risk benefits. This update will also significantly expand our disclosures.
128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 1 - Significant Accounting Policies - Continued
ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
The amendments in this update eliminate the troubled debt restructuring recognition and measurement guidance and instead
require that an entity evaluate whether the modification represents a new loan or the continuation of an existing loan. The
amendments also enhance the disclosure requirements related to certain modifications of receivables made to borrowers
experiencing financial difficulty. In addition, the amendments in this update require that an entity disclose current-period gross
write-offs by year of origination for financing receivables and net investment in leases. The amendments in this update should
be applied prospectively, except for the transition method related to the recognition and measurement of troubled debt
restructurings, for which an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-
effect adjustment to retained earnings in the period of adoption.
This update is effective for periods beginning January 1, 2023, and we do not anticipate that the adoption of this update will have
an effect on our financial position or results of operations but will expand our disclosures.
Note 2 - Fair Value of Financial Instruments
Fair Value Measurements for Financial Instruments Carried at Fair Value
We report fixed maturity securities, which are classified as available-for-sale securities, derivative financial instruments, and
unrestricted equity securities at fair value in our consolidated balance sheets. We report our investments in private equity
partnerships at our share of the partnerships' NAV per share or its equivalent as a practical expedient for fair value. See Note 1.
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.
We classify financial instruments in accordance with a fair value hierarchy consisting of three levels based on the observability
of valuation inputs:
•
•
•
Level 1 - the highest category of the fair value hierarchy classification wherein inputs are unadjusted and represent
quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 - valued using inputs (other than prices included in Level 1) that 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 3 - the lowest category of the fair value hierarchy and reflects the judgment of management regarding what
market participants would use in pricing assets or liabilities at the measurement date. Financial assets and liabilities
categorized as Level 3 are generally those that are valued using unobservable inputs to extrapolate an estimated fair
value.
Valuation Methodologies of Financial Instruments Measured at Fair Value
Valuation techniques used for assets and liabilities accounted for at fair value are generally categorized into three types. The
market approach uses prices and other relevant information from market transactions involving identical or comparable assets or
liabilities. The income approach converts future amounts, such as cash flows or earnings, to a single present amount, or a
129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
discounted amount. 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.
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 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 using a pricing service, we obtain the vendor's
pricing documentation to ensure we understand their methodologies. We periodically review and approve the selection of our
pricing vendors to ensure we are in agreement with their current methodologies. When markets are less active, brokers may rely
more on models with inputs based on the information available only to the broker. Our internal investment management
professionals, which include portfolio managers and analysts, monitor securities priced by brokers and evaluate their prices for
reasonableness based on benchmarking to available primary and secondary market information. 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 it is a bid or market quote. 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 suitable circumstances, provide a more
appropriate fair value. During 2022, we have applied valuation approaches and techniques on a consistent basis to similar assets
and liabilities and consistent with those approaches and techniques used at year end 2021.
Fixed Maturity and Equity Securities
We use observable and unobservable inputs in measuring the fair value of our fixed maturity and equity securities. For securities
categorized as Level 1, fair values equal active Trade Reporting and Compliance Engine (TRACE) pricing or unadjusted market
maker prices. For securities categorized as Level 2 or Level 3, inputs that may be used in valuing each class of securities at any
given time period are disclosed below. Actual inputs used to determine fair values will vary for each reporting period depending
on the availability of inputs which may, at times, be affected by the lack of market liquidity.
Instrument
Level 2
Observable Inputs
Level 3
Unobservable Inputs
United States Government and Government Agencies and Authorities
Valuation Method
Principally the market approach
Not applicable
Valuation
Techniques / Inputs
Prices obtained from external pricing services
States, Municipalities, and Political Subdivisions
Valuation Method
Principally the market approach
Principally the market approach
Valuation
Techniques / Inputs
Prices obtained from external pricing services
Analysis of similar bonds, adjusted for
comparability
Relevant reports issued by analysts and rating
agencies
Audited financial statements
130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
Level 2
Observable Inputs
Level 3
Unobservable Inputs
Principally the market approach
Principally the market approach
Prices obtained from external pricing services
Analysis of similar bonds, adjusted for
comparability
Non-binding broker quotes
Call provisions
Instrument
Foreign Governments
Valuation Method
Valuation
Techniques / Inputs
Public Utilities
Valuation Method
Principally the market and income approaches
Principally the market and income approaches
Valuation
Techniques / Inputs
Prices obtained from external pricing services
Change in benchmark reference
Analysis of similar bonds, adjusted for
comparability
Discount for size - illiquidity
Volatility of credit
Lack of marketability
Public Utilities - Continued
Non-binding broker quotes
Benchmark yields
Transactional data for new issuances and
secondary trades
Security cash flows and structures
Recent issuance / supply
Audited financial statements
Security and issuer level spreads
Security creditor ratings/maturity/capital
structure/optionality
Public covenants
Comparative bond analysis
Relevant reports issued by analysts and rating
agencies
Mortgage/Asset-Backed Securities
Valuation Method
Principally the market and income approaches
Principally the market approach
Analysis of similar bonds, adjusted for
comparability
Prices obtained from external pricing services
Valuation
Techniques / Inputs
Prices obtained from external pricing services
Non-binding broker quotes
Security cash flows and structures
Underlying collateral
Prepayment speeds/loan performance/
delinquencies
Relevant reports issued by analysts and rating
agencies
Audited financial statements
131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
Instrument
All Other Corporate Bonds
Level 2
Observable Inputs
Level 3
Unobservable Inputs
Valuation Method
Principally the market and income approaches
Principally the market and income approaches
Valuation
Techniques / Inputs
Prices obtained from external pricing services
Change in benchmark reference
Non-binding broker quotes
Benchmark yields
Transactional data for new issuances and
secondary trades
Security cash flows and structures
Recent issuance / supply
Security and issuer level spreads
Security creditor ratings/maturity/capital
structure/optionality
Discount for size - illiquidity
Volatility of credit
Lack of marketability
Prices obtained from external pricing services
All Other Corporate Bonds - Continued
Public covenants
Comparative bond analysis
Relevant reports issued by analysts and rating
agencies
Audited financial statements
Redeemable Preferred Stocks
Valuation Method
Principally the market approach
Principally the market approach
Valuation
Techniques / Inputs
Non-binding broker quotes
Financial statement analysis
Benchmark yields
Comparative bond analysis
Call provisions
Relevant reports issued by analysts and rating
agencies
Audited financial statements
Perpetual Preferred and Equity Securities
Valuation Method
Principally the market approach
Principally the market and income approaches
Valuation
Techniques / Inputs
Prices obtained from external pricing services
Financial statement analysis
Non-binding broker quotes
The management of our investment portfolio includes establishing pricing policy and reviewing the reasonableness of sources
and inputs used in developing pricing. We review all prices that vary between multiple pricing vendors by a threshold that is
outside a normal market range for the asset type. In the event we receive a vendor's market price that does not appear reasonable
based on our market analysis, we may challenge the price and request further information about the assumptions and
132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
methodologies used by the vendor to price the security. We may change the vendor price based on a better data source such as
an actual trade. We also review all prices that did not change from the prior month to ensure that these prices are within our
expectations. 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 and
considering our knowledge of the financial conditions and industry in which the issuer operates, certain features of the financial
instrument require that an adjustment be made to the value originally obtained from our pricing sources. These features may
include the complexity of the financial instrument, the market in which the financial instrument is traded, counterparty credit
risk, credit structure, concentration, or liquidity. 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. In the event an asset is sold, we test the validity of the fair value determined
by our valuation techniques by comparing the selling price to the fair value determined for the asset in the immediately
preceding month end reporting period.
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, 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.
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.
At December 31, 2022, approximately 13.0 percent of our fixed maturity securities were valued using active trades from TRACE
pricing or market maker prices for which there was current market activity in that specific security (comparable to receiving one
binding quote). The prices obtained were not adjusted, and the assets were classified as Level 1.
The remaining 87.0 percent of our fixed maturity securities were valued based on non-binding quotes or other observable and
unobservable inputs, as discussed below:
•
•
•
71.0 percent of our fixed maturity securities were valued based on prices from pricing services that generally use
observable inputs such as prices for securities or comparable securities in active markets in their valuation techniques.
These assets were classified as Level 2.
15.1 percent of our fixed maturity securities were valued based on one or more non-binding broker quotes, if validated
by observable market data. When only one price is available, it is used if observable inputs and analysis confirms that it
is appropriate. These assets, for which we were able to validate the price using other observable market data, were
classified as Level 2.
0.9 percent of our fixed maturity securities were valued based on prices of comparable securities, internal models, or
pricing services or other non-binding quotes with no other observable market data. These assets were classified as
either Level 2 or Level 3, with the categorization dependent on whether there was other observable market data.
Derivatives
Fair values for derivatives other than embedded derivatives in modified coinsurance arrangements are based on market quotes or
pricing models and represent the net amount of cash we would have paid or received if the contracts had been settled or closed as
of the last day of the period. Credit risk related to the counterparty and the Company is considered in determining the fair values
of these derivatives. However, since we have collateralization agreements in place with each counterparty which limits our
exposure, any credit risk is immaterial. Therefore, we determined that no adjustments for credit risk were required as of
December 31, 2022 or 2021.
133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
Fair values for our embedded derivative in a modified coinsurance arrangement 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.
We consider transactions in inactive markets to be less representative of fair value. We use all available observable inputs when
measuring fair value, but when significant unobservable inputs are used, we classify these assets or liabilities as Level 3.
Private Equity Partnerships
Our private equity partnerships represent funds that are primarily invested in private credit, private equity, and real assets, as
described below. Distributions received from the funds arise from income generated by the underlying investments as well as
the liquidation of the underlying investments. There is generally not a public market for these investments.
134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
The following tables present additional information about our private equity partnerships, including commitments for additional
investments which may or may not be funded:
Investment Category
Fair Value
(in millions of dollars)
December 31, 2022
Redemption Term /
Redemption Notice
Unfunded Commitments
(in millions of dollars)
Private Credit
(a) $
239.3 Not redeemable
$
Total Private Credit
Initial 2 year lock on each
new investment / Quarterly
after 2 year lock with 90
days notice
35.7
275.0
Private Equity
(b)
453.6 Not redeemable
Total Private Equity
Real Assets
(c)
Total Real Assets
Initial 5.5 year lock on each
new investment / Quarterly
after 5.5 year lock with 90
days notice
31.7
485.3
373.9 Not redeemable
60.1 Quarterly / 90 days notice
434.0
Total Partnerships
$
1,194.3
$
90.9
13.4
104.3
377.2
39.1
416.3
256.3
—
256.3
776.9
Investment Category
Fair Value
(in millions of dollars)
December 31, 2021
Redemption Term /
Redemption Notice
Unfunded Commitments
(in millions of dollars)
Private Credit
(a) $
240.6 Not redeemable
$
143.7
Total Private Credit
Initial 2 year lock on each
new investment / Quarterly
after 2 year lock with 90
days notice
38.8
279.4
Private Equity
(b)
365.8 Not redeemable
Total Private Equity
Real Assets
(c)
Total Real Assets
Initial 5.5 year lock on each
new investment / Quarterly
after 5.5 year lock with 90
days notice
18.8
384.6
256.2 Not redeemable
58.4 Quarterly / 90 days notice
314.6
Total Partnerships
$
978.6
$
6.8
150.5
274.3
50.3
324.6
278.1
—
278.1
753.2
135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
(a) Private Credit - The limited partnerships described in this category employ various investment strategies, generally
providing direct lending or other forms of debt financing including first-lien, second-lien, mezzanine, and subordinated
loans. The limited partnerships have credit exposure to corporates, physical assets, and/or financial assets within a
variety of industries (including manufacturing, healthcare, energy, business services, technology, materials, and retail)
in North America and, to a lesser extent, outside of North America. As of December 31, 2022, the estimated remaining
life of the investments that do not allow for redemptions is approximately 55 percent in the next 3 years, 34 percent
during the period from 3 to 5 years, 9 percent during the period from 5 to 10 years, and 2 percent during the period from
10 to 15 years.
(b) Private Equity - The limited partnerships described in this category employ various strategies generally investing in
controlling or minority control equity positions directly in companies and/or assets across various industries (including
manufacturing, healthcare, energy, business services, technology, materials, and retail), primarily in private markets
within North America and, to a lesser extent, outside of North America. As of December 31, 2022, the estimated
remaining life of the investments that do not allow for redemptions is approximately 35 percent in the next 3 years, 19
percent during the period from 3 to 5 years, 40 percent during the period from 5 to 10 years, and 6 percent during the
period from 10 to 15 years.
(c) Real Assets - The limited partnerships described in this category employ various strategies, which include investing in
the equity and/or debt financing of physical assets, including infrastructure (energy, power, water/wastewater,
communications), transportation (including airports, ports, toll roads, aircraft, railcars) and real estate in North America,
Europe, South America, and Asia. As of December 31, 2022, the estimated remaining life of the investments that do
not allow for redemptions is approximately 22 percent in the next 3 years, 28 percent during period from 3 to 5 years
and 50 percent during the period from 5 to 10 years.
We record changes in our share of net asset value of the partnerships in net investment income. We receive financial
information related to our investments in partnerships and generally record investment income on a one-quarter lag in
accordance with our accounting policy.
136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
The following tables present information about financial instruments measured at fair value on a recurring basis by fair value
level, based on the observability of the inputs used.
Level 1
Level 2
December 31, 2022
Level 3
(in millions of dollars)
NAV
Total
Assets
Fixed Maturity Securities
United States Government and
Government Agencies and Authorities
States, Municipalities, and Political
Subdivisions
Foreign Governments
Public Utilities
Mortgage/Asset-Backed Securities
All Other Corporate Bonds
Redeemable Preferred Stocks
Total Fixed Maturity Securities
Other Long-term Investments
Derivatives
Forwards
Foreign Exchange Contracts
Total Derivatives
Perpetual Preferred and Equity Securities
Private Equity Partnerships
Total Other Long-term Investments
Total Financial Instrument Assets Carried at
Fair Value
Liabilities
Other Liabilities
Derivatives
$
81.7 $
416.5 $
— $
— $
498.2
8.7
—
160.1
—
4,268.6
—
4,519.1
3,448.3
827.1
4,796.8
551.3
20,097.3
3.5
30,140.8
—
—
—
—
—
—
5.6
83.5
89.1
9.6
—
98.7
0.2
—
—
22.0
158.7
—
180.9
—
—
—
16.2
—
16.2
—
—
—
—
—
—
—
—
—
—
—
1,194.3
1,194.3
3,457.2
827.1
4,956.9
573.3
24,524.6
3.5
34,840.8
5.6
83.5
89.1
25.8
1,194.3
1,309.2
$
4,519.1 $
30,239.5 $
197.1 $
1,194.3 $
36,150.0
Forwards
Foreign Exchange Contracts
$
— $
—
48.5 $
25.5
— $
—
Embedded Derivative in Modified
Coinsurance Arrangement
Total Derivatives
Total Financial Instrument Liabilities Carried
at Fair Value
$
—
—
—
74.0
13.9
13.9
— $
—
—
—
48.5
25.5
13.9
87.9
— $
74.0 $
13.9 $
— $
87.9
137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
Level 1
Level 2
December 31, 2021
Level 3
(in millions of dollars)
NAV
Total
$
— $
580.1 $
— $
— $
580.1
—
—
230.8
—
3,288.7
—
3,519.5
4,714.1
1,125.8
6,140.7
451.1
25,673.2
4.1
38,689.1
—
—
—
—
—
39.5
39.5
27.9
—
67.4
13.4
20.8
44.5
187.2
861.5
—
1,127.4
—
—
5.8
—
5.8
—
—
—
—
—
—
—
—
—
—
978.6
978.6
4,727.5
1,146.6
6,416.0
638.3
29,823.4
4.1
43,336.0
39.5
39.5
33.7
978.6
1,051.8
$
3,519.5 $
38,756.5 $
1,133.2 $
978.6 $
44,387.8
Assets
Fixed Maturity Securities
United States Government and
Government Agencies and Authorities
States, Municipalities, and Political
Subdivisions
Foreign Governments
Public Utilities
Mortgage/Asset-Backed Securities
All Other Corporate Bonds
Redeemable Preferred Stocks
Total Fixed Maturity Securities
Other Long-term Investments
Derivatives
Foreign Exchange Contracts
Total Derivatives
Perpetual Preferred and Equity Securities
Private Equity Partnerships
Total Other Long-term Investments
Total Financial Instrument Assets Carried at
Fair Value
Liabilities
Other Liabilities
Derivatives
Foreign Exchange Contracts
$
— $
35.0 $
— $
— $
35.0
Embedded Derivative in Modified
Coinsurance Arrangement
Total Derivatives
—
—
—
35.0
30.1
30.1
—
—
30.1
65.1
Total Financial Instrument Liabilities Carried
at Fair Value
$
— $
35.0 $
30.1 $
— $
65.1
138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
Changes in assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as
follows:
Year Ended December 31, 2022
Total Realized
and
Unrealized
Investment
Gains (Losses)
Included in
Earnings OCI
Fair Value
Beginning
of Year
Purchases
Sales/
Maturities
(in millions of dollars)
Level 3
Transfers
Into Out of
Change in
Unrealized
Gain (Loss) on
Securities Held at
the
End of Period
included in
OCI
Earnings
Fair
Value
End of
Year
Fixed Maturity Securities
States,
Municipalities, and
Political
Subdivisions
Foreign
Governments
Public Utilities
Mortgage/Asset-
Backed Securities
All Other Corporate
Bonds
Total Fixed
Maturity
Securities
Perpetual Preferred and
Equity Securities
Embedded Derivative in
Modified Coinsurance
Arrangement
$
13.4 $ — $
(0.1) $
— $
— $ 0.3 $ (13.4) $
0.2 $ (0.1) $
20.8
44.5
—
—
(0.8)
(2.8)
—
—
(20.0) — — —
(12.8) 15.6 (44.5) —
(0.8)
(2.8)
187.2
—
(0.3)
20.7
(10.6) — (175.0)
22.0
(0.3)
861.5
—
(32.0)
25.3
(102.3) 161.9 (755.7) 158.7 (32.0)
—
—
—
—
—
1,127.4
—
(36.0)
46.0
(145.7) 177.8 (988.6) 180.9 (36.0)
—
5.8
3.0 —
7.1
— 0.3 —
16.2 —
3.0
(30.1)
16.2 —
—
— — —
(13.9) —
16.2
139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
Year Ended December 31, 2021
Total Realized
and
Unrealized
Investment
Gains (Losses)
Included in
Earnings OCI
Fair Value
Beginning
of Year
Purchases
Sales/
Maturities
(in millions of dollars)
Level 3
Transfers
Into Out of
Change in
Unrealized
Gain (Loss) on
Securities Held at
the
End of Period
included in
OCI
Earnings
Fair
Value
End of
Year
Fixed Maturity Securities
States,
Municipalities, and
Political
Subdivisions
Foreign
Governments
Public Utilities
Mortgage/Asset-
Backed Securities
All Other Corporate
Bonds
Total Fixed
Maturity
Securities
Perpetual Preferred and
Equity Securities
Embedded Derivative in
Modified Coinsurance
Arrangement
$
15.5 $ — $ (2.1) $
— $
— $ — $ — $ 13.4 $ (2.1) $
21.8
185.7
—
—
(1.0)
(2.3)
—
—
— — —
(44.0) 36.0 (130.9)
20.8
44.5
(1.0)
(2.3)
81.3
— (96.0)
—
(72.3) 274.2 — 187.2 (96.0)
943.1
— (24.6)
249.9
(80.2) 77.6 (304.3) 861.5 (24.6)
—
—
—
—
—
1,247.4
— (126.0)
249.9
(196.5) 387.8 (435.2) 1,127.4 (126.0)
—
4.7
0.1 —
1.0
— — —
5.8 —
0.1
(39.8)
9.7 —
—
— — —
(30.1) —
9.7
Realized and unrealized investment gains and losses presented in the preceding tables represent gains and losses only for the
time during which the applicable financial instruments were classified as Level 3. The transfers between levels resulted
primarily from a change in observability of three inputs used to determine fair values of the securities transferred:
(1) transactional data for new issuance and secondary trades, (2) broker/dealer quotes and pricing, primarily related to changes in
the level of activity in the market and whether the market was considered orderly, 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.
140
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
The table below provides quantitative information regarding the significant unobservable inputs used in Level 3 fair value
measurements derived from internal models. Unobservable inputs for fixed maturity securities are weighted by the fair value of
the securities. Certain securities classified as Level 3 are excluded from the table below due to limitations in our ability to obtain
the underlying inputs used by external pricing sources.
Fair
Value
Valuation
Method
December 31, 2022
Unobservable Input
Range/Weighted Average
(in millions of dollars)
Fixed Maturity Securities
All Other Corporate Bonds -
Private
$ 15.3
Perpetual Preferred and Equity
Securities
16.2
Market
Approach
Market
Approach
Volatility of Credit
Market Convention
Market Convention
(a)
(b)
(b)
5.41% - 5.41% / 5.41%
Priced at Par Value
Priced at Cost, Owner's
Equity, or Most Recent
Round
Embedded Derivative in
Modified Coinsurance
Arrangement
(13.9)
Discounted
Cash Flows
Projected Liability Cash Flows
Weighted Spread of Swap Curve
(d)
Actuarial Assumptions
0.6%
Fair
Value
Valuation
Method
December 31, 2021
Unobservable Input
Range/Weighted Average
(in millions of dollars)
Fixed Maturity Securities
All Other Corporate Bonds -
Private
$ 111.8
Market
Approach
Volatility of Credit
Lack of Marketability
(a)
(c)
6.30% - 6.30% / 6.30%
0.14% - 0.73% / 0.51%
Perpetual Preferred and Equity
Securities
5.8
Market
Approach
Market Convention
(b)
Priced at Cost or Owner's
Equity
Embedded Derivative in
Modified Coinsurance
Arrangement
(30.1)
Discounted
Cash Flows
Projected Liability Cash Flows
Weighted Spread of Swap Curve
(d) Actuarial Assumptions
0.7%
(a)
(b)
(c)
(d)
Represents basis point adjustments for credit-specific factors
Represents a decision to price based on par value, cost, owner's equity, or the price of the most recent capital funding round
when limited data is available
Represents basis point adjustments to apply a discount due to the illiquidity of an investment
Represents various actuarial assumptions required to derive the liability cash flows. Fair value of embedded derivative is most
often driven by the change in the weighted average credit spread to the swap curve for the assets backing the hypothetical loan
Other than market convention, the impact of isolated decreases in unobservable inputs will result in a higher estimated fair value,
whereas isolated increases in unobservable inputs will result in a lower estimated fair value. The unobservable input for market
convention is not sensitive to input movements. The projected liability cash flows used in the fair value measurement of our
Level 3 embedded derivative are based on expected claim payments. If claim payments increase, the projected liability cash
flows will increase, resulting in a decrease in the fair value of the embedded derivative. Decreases in projected liability cash
flows will result in an increase in the fair value of the embedded derivative.
141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
Fair Value Measurements for Financial Instruments Not Carried at Fair Value
The methods and assumptions used to estimate fair values of financial instruments not carried at fair value are discussed as
follows:
Mortgage Loans: Fair value of newly originated, seasoned performing, or sub-performing but likely to continue cash flowing
loans are calculated using a discounted cash flow analysis. Loans’ cash flows are modeled and appropriately discounted by a
rate based on current yields and credit spreads. For sub and non-performing loans where there is some probability the loan will
not continue to pay, a price based approach would be used to estimate the loan’s value in the open market utilizing current
transaction information from similar loans.
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. Carrying amounts for ceded policy loans, which
equal $3,312.5 million and $3,373.7 million as of December 31, 2022 and 2021, respectively, approximate fair value and are
reported on a gross basis in our consolidated balance sheets. A change in interest rates for ceded policy loans will not impact our
financial position because the benefits and risks are fully ceded to reinsuring counterparties.
Miscellaneous Long-term Investments: Carrying amounts for tax credit partnerships equal the unamortized balance of our
contractual commitments and approximate fair value. Our shares of Federal Home Loan Bank (FHLB) common stock are
carried at cost, which approximates fair value.
Long-term Debt: Fair values for long-term debt are obtained from independent pricing services or discounted cash flow analyses
based on current incremental borrowing rates for similar types of borrowing arrangements.
FHLB Funding Agreements: Funding agreements with the FHLB represent cash advances used for the purpose of investing in
fixed maturity securities. Carrying amounts approximate fair value.
Unfunded Commitments to Investment Partnerships: Unfunded equity commitments represent amounts that we have committed
to fund certain investment partnerships. These commitments are legally binding, subject to the partnerships meeting specified
conditions. Carrying amounts of these financial instruments approximate fair value.
142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
The following table presents the carrying amounts and estimated fair values of our financial instruments not measured at fair
value and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the
inputs used:
December 31, 2022
Estimated Fair Value
Level 1
Level 2
Level 3
(in millions of dollars)
Total
Carrying
Value
$
— $
—
2,159.5 $
—
— $
3,677.0
2,159.5 $
3,677.0
2,435.4
3,601.2
Assets
Mortgage Loans
Policy Loans
Other Long-term Investments
Miscellaneous Long-term Investments
—
17.1
1.3
18.4
18.4
Total Financial Instrument Assets Not
Carried at Fair Value
$
— $
2,176.6 $
3,678.3 $
5,854.9 $
6,055.0
Liabilities
Long-term Debt
Other Liabilities
Unfunded Commitments
Payable for Collateral on FHLB
Funding Agreements
Total Financial Instrument Liabilities Not
Carried at Fair Value
$
2,288.9 $
783.1 $
— $
3,072.0 $
3,427.8
—
—
0.7
99.1
—
—
0.7
99.1
0.7
99.1
$
2,288.9 $
882.9 $
— $
3,171.8 $
3,527.6
143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 2 - Fair Value of Financial Instruments - Continued
December 31, 2021
Estimated Fair Value
Level 1
Level 2
Level 3
(in millions of dollars)
Total
Carrying
Value
$
— $
—
2,677.8 $
—
— $
3,807.1
2,677.8 $
3,807.1
2,560.4
3,662.9
Assets
Mortgage Loans
Policy Loans
Other Long-term Investments
Miscellaneous Long-term Investments
—
22.1
9.5
31.6
31.6
Total Financial Instrument Assets Not
Carried at Fair Value
$
— $
2,699.9 $
3,816.6 $
6,516.5 $
6,254.9
Liabilities
Long-term Debt
Other Liabilities
Unfunded Commitments
Payable for Collateral on FHLB
Funding Agreements
Total Financial Instrument Liabilities Not
Carried at Fair Value
$
2,237.3 $
1,641.8 $
— $
3,879.1 $
3,442.2
—
—
0.7
160.9
—
—
0.7
0.7
160.9
160.9
$
2,237.3 $
1,803.4 $
— $
4,040.7 $
3,603.8
The carrying values of financial instruments such as short-term investments, cash and bank deposits, accounts and premiums
receivable, accrued investment income, securities lending agreements, and short-term debt approximate fair value due to the
short-term nature of the instruments. As such, these financial instruments are not included in the above chart.
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 seeks
to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance
contracts.
144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 3 - Investments
Fixed Maturity Securities
At December 31, 2022 and 2021, all fixed maturity securities were classified as available-for-sale. The amortized cost and fair
values of securities by security type are shown as follows:
December 31, 2022
Amortized
Cost, Gross
of ACL(1)
ACL(1)
Gross
Unrealized
Gain
(in millions of dollars)
Gross
Unrealized
Loss
Fair
Value
United States Government and Government
Agencies and Authorities
$
503.8 $
States, Municipalities, and Political Subdivisions
Foreign Governments
Public Utilities
Mortgage/Asset-Backed Securities
All Other Corporate Bonds
Redeemable Preferred Stocks
Total Fixed Maturity Securities
$
4,006.0
908.1
5,170.9
592.1
26,640.3
4.0
37,825.2 $
— $
—
—
—
—
—
—
— $
20.3 $
87.1
34.9
141.0
8.2
452.1
—
743.6 $
25.9 $
635.9
115.9
355.0
27.0
2,567.8
0.5
3,728.0 $
498.2
3,457.2
827.1
4,956.9
573.3
24,524.6
3.5
34,840.8
December 31, 2021
Amortized
Cost, Gross
of ACL(1)
ACL(1)
Gross
Unrealized
Gain
(in millions of dollars)
Gross
Unrealized
Loss
Fair
Value
United States Government and Government
Agencies and Authorities
States, Municipalities, and Political Subdivisions
Foreign Governments
Public Utilities
Mortgage/Asset-Backed Securities
All Other Corporate Bonds
Redeemable Preferred Stocks
Total Fixed Maturity Securities
$
460.1 $
4,150.2
952.0
5,266.4
587.9
25,966.1
4.0
37,386.7 $
$
— $
—
—
—
—
—
—
— $
120.1 $
584.2
215.3
1,159.4
50.4
3,919.9
0.1
6,049.4 $
0.1 $
6.9
20.7
9.8
—
62.6
—
100.1 $
580.1
4,727.5
1,146.6
6,416.0
638.3
29,823.4
4.1
43,336.0
(1)Allowance for Credit Losses
145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 3 - Investments - Continued
The following charts indicate the length of time our fixed maturity securities have been in a gross unrealized loss position.
December 31, 2022
Less Than 12 Months
12 Months or Greater
Fair
Value
Gross
Unrealized
Loss
Fair
Value
(in millions of dollars)
Gross
Unrealized
Loss
United States Government and Government Agencies and
Authorities
$
246.6 $
1,920.1
160.1
2,242.2
386.6
15,865.6
3.5
20,824.7 $
22.6 $
476.1
47.9
252.0
27.0
1,799.7
0.5
2,625.8 $
12.2 $
346.6
176.9
255.2
0.1
2,194.1
—
2,985.1 $
3.3
159.8
68.0
103.0
—
768.1
—
1,102.2
December 31, 2021
Less Than 12 Months
12 Months or Greater
Fair
Value
Gross
Unrealized
Loss
Fair
Value
(in millions of dollars)
Gross
Unrealized
Loss
9.3 $
326.4
234.4
263.3
29.2
2,146.3
3,008.9 $
0.1 $
6.9
18.9
9.1
—
51.6
86.6 $
— $
0.4
10.7
17.6
0.1
199.4
228.2 $
—
—
1.8
0.7
—
11.0
13.5
States, Municipalities, and Political Subdivisions
Foreign Governments
Public Utilities
Mortgage/Asset-Backed Securities
All Other Corporate Bonds
Redeemable Preferred Stocks
Total Fixed Maturity Securities
United States Government and Government Agencies and
Authorities
States, Municipalities, and Political Subdivisions
Foreign Governments
Public Utilities
Mortgage/Asset-Backed Securities
All Other Corporate Bonds
Total Fixed Maturity Securities
$
$
$
146
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 3 - Investments - Continued
The following is a distribution of the maturity dates for fixed maturity securities. The maturity dates have not been adjusted for
possible calls or prepayments.
Amortized Cost,
Net of ACL(1)
Unrealized Gain Position
Unrealized Loss Position
Gross Gain
Fair Value
Gross Loss
Fair Value
December 31, 2022
1 year or less
Over 1 year through 5 years
Over 5 years through 10 years
Over 10 years
$
Mortgage/Asset-Backed Securities
Total Fixed Maturity Securities
$
1,133.5 $
7,090.8
10,096.7
18,912.1
37,233.1
592.1
37,825.2 $
339.1 $
(in millions of dollars)
2.9 $
86.7
294.8
351.0
735.4
8.2
743.6 $
1,953.2
3,538.9
5,013.2
10,844.4
186.6
11,031.0 $
5.7 $
238.4
863.8
2,593.1
3,701.0
27.0
3,728.0 $
791.6
4,985.9
5,988.8
11,656.8
23,423.1
386.7
23,809.8
Amortized Cost,
Net of ACL(1)
Unrealized Gain Position
Unrealized Loss Position
Gross Gain
Fair Value
Gross Loss
Fair Value
December 31, 2021
1 year or less
Over 1 year through 5 years
Over 5 years through 10 years
Over 10 years
Mortgage/Asset-Backed Securities
Total Fixed Maturity Securities
(1)Allowance for Credit Losses
$
$
767.3 $
6,613.2
10,614.3
18,804.0
36,798.8
587.9
37,386.7 $
756.0 $
(in millions of dollars)
17.6 $
540.2
1,453.3
3,987.9
5,999.0
50.4
6,049.4 $
7,050.5
10,905.0
20,778.4
39,489.9
609.0
40,098.9 $
0.1 $
6.0
26.0
68.0
100.1
—
100.1 $
28.9
96.9
1,136.6
1,945.4
3,207.8
29.3
3,237.1
The following chart depicts an analysis of our fixed maturity security portfolio between investment-grade and below-investment-
grade categories as of December 31, 2022:
Investment-Grade
Below-Investment-Grade
Total Fixed Maturity Securities
$
$
Fair Value
Gross
Unrealized
Gain
(in millions of dollars)
734.6 $
9.0
743.6 $
32,851.0 $
1,989.8
34,840.8 $
Gross Unrealized Loss
Percent of Total
Gross
Unrealized Loss
Amount
3,545.5
182.5
3,728.0
95.1 %
4.9
100.0 %
The 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. Below-investment-grade fixed
maturity securities are generally more likely to develop credit concerns than investment-grade securities. At December 31, 2022,
the unrealized losses in our below-investment-grade fixed maturity securities were generally due to credit spreads in certain
industries or sectors and, to a lesser extent, credit concerns related to specific securities. For each specific security in an
unrealized loss position, we believe that there are positive factors which mitigate credit concerns and that the securities for which
we have not recorded a credit loss will recover in value. We have the ability and intent to continue to hold these securities to
recovery of amortized cost and believe that no credit losses have occurred.
147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 3 - Investments - Continued
As of December 31, 2022, we held 882 individual investment-grade fixed maturity securities and 112 individual below-
investment-grade fixed maturity securities that were in an unrealized loss position, of which 262 investment-grade fixed maturity
securities and 16 below-investment-grade fixed maturity securities had been in an unrealized loss position continuously for over
one year.
In determining when a decline in fair value below amortized cost of a fixed maturity security represents a credit loss, we evaluate
the following factors:
• Whether we expect to recover the entire amortized cost basis of the security
• Whether we intend to sell the security or will be required to sell the security before the recovery of its amortized cost
basis
The significance of the 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
• Whether the security is current as to principal and interest payments
•
•
•
•
• Market conditions
•
•
•
•
•
Rating agency and governmental actions
Bid and offering prices and the level of trading activity
Adverse changes in estimated cash flows for securitized investments
Changes in fair value subsequent to the balance sheet date
Any other key measures for the related security
While determining whether a credit loss exists is a judgmental area, we utilize a formal, well-defined, and disciplined process to
monitor and evaluate our fixed income investment portfolio, supported by issuer specific research and documentation as of the
end of each period. The process results in a thorough evaluation of problem investments and the recording of credit losses on a
timely basis for investments determined to have a credit loss. We calculate the allowance for credit losses of fixed maturity
securities based on the present value of our best estimate of cash flows expected to be collected, discounted using the effective
interest rate implicit in the security at the date of acquisition. When estimating future cash flows, we analyze the strength of the
issuer’s balance sheet, its debt obligations and near-term funding arrangements, cash flow and liquidity, the profitability of its
core businesses, the availability of marketable assets which could be sold to increase liquidity, its industry fundamentals and
regulatory environment, and its access to capital markets.
The following tables present a rollforward of the allowance for credit losses on available-for-sale fixed maturity securities, which
were classified as "public utilities" during year ended December 31, 2022 and "all other corporate bonds" during the year ended
December 31, 2021, respectively.
Balance, beginning of period
Credit losses on securities for which credit losses were not previously
recorded
Change in allowance on securities with allowance recorded in previous period
Change in allowance on securities disposed during the period
Balance, end of period
$
$
Year Ended December 31
2022
2021
(in millions of dollars)
— $
4.6
—
(4.6)
— $
6.8
—
0.5
(7.3)
—
In the fourth quarter of 2022, the issuer of a fixed maturity security previously classified as "public utilities" entered into a
troubled debt restructuring agreement. In order to maximize recovery of the investment, the debt was restructured by way of
principal reduction, interest forgiveness, and a debt to equity conversion. Principal owed was reduced by $4.8 million, semi-
annual interest payments for the period beginning June 30, 2022 and ending June 30, 2024 were forgiven, and a portion of the
remaining debt was converted to equity. As of December 31, 2022, we have received $4.9 million of an equity stake in the
restructured entity, and have recorded receivables for $5.2 million and $2.8 million in cash to be received by March 31, 2023 and
148
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 3 - Investments - Continued
December 31, 2023, respectively. The amortized cost of the fixed maturity security prior to the restructuring was $17.7 million,
and the restructuring resulted in a total loss of $4.8 million, which was recognized during 2022.
At December 31, 2022, we had commitments of $58.7 million to fund private placement fixed maturity securities, the amount of
which may or may not be funded.
Variable Interest Entities
We invest in variable interests issued by variable interest entities. These investments, which are passive in nature, include
minority ownership interests in private equity partnerships, tax credit partnerships, and special purpose entities. For those
variable interests that are not consolidated in our financial statements, we are not the primary beneficiary because we have
neither the power to direct the activities that are most significant to economic performance nor the responsibility to absorb a
majority of the expected losses. The determination of whether we are the primary beneficiary is performed at the time of our
initial investment and at the date of each subsequent reporting period.
As of December 31, 2022, the carrying amount of our variable interest entity investments that are not consolidated in our
financial statements was $1,195.3 million, comprised of $1.0 million of tax credit partnerships and $1,194.3 million of private
equity partnerships. At December 31, 2021, the carrying amount of our variable interest entity investments that are not
consolidated in our financial statements was $987.9 million, comprised of $9.3 million of tax credit partnerships and $978.6
million of private equity partnerships. These variable interest entity investments are reported as other long-term investments in
our consolidated balance sheets.
The Company invests in tax credit partnerships primarily for the receipt of income tax credits and tax benefits derived from
passive losses on the investments. Amounts recognized in the consolidated statements of income are as follows:
Income Tax Credits
Amortization, Net of Tax
Income Tax Benefit
2022
Year Ended December 31
2021
(in millions of dollars)
2020
$
$
8.0 $
(5.9)
2.1 $
21.6 $
(15.0)
6.6 $
33.2
(21.9)
11.3
Contractually, we are a limited partner in these tax credit partnerships, and our maximum exposure to loss is limited to
the carrying value of our investment, which includes $0.7 million of unfunded unconditional commitments at December 31,
2022. See Note 2 for commitments to fund private equity partnerships.
Mortgage Loans
Our mortgage loan portfolio is well diversified by both geographic region and property type to reduce risk of concentration. All
of our mortgage loans are collateralized by commercial real estate. When issuing a new loan, our general policy is not to exceed
a loan-to-value ratio, or the ratio of the loan balance to the estimated fair value of the underlying collateral, of 75 percent. We
update the loan-to-value ratios at least every three years for each loan, and properties undergo a general inspection at least every
two years. Our general policy for newly issued loans is to have a debt service coverage ratio greater than 1.25 times on a
normalized 25 year amortization period. We update our debt service coverage ratios annually.
We carry our mortgage loans at amortized cost less the allowance for expected credit losses. The amortized cost of our mortgage
loans was $2,444.7 million and $2,568.7 million at December 31, 2022 and 2021, respectively. The allowance for expected
credit losses was $9.3 million and $8.3 million at December 31, 2022 and 2021, respectively. Interest income is accrued on the
principal amount of the loan based on the loan's contractual interest rate. We report accrued interest income for our mortgage
loans as accrued investment income on our consolidated balance sheets, and the amount of the accrued income was $7.7 million
and $8.1 million at December 31, 2022 and 2021, respectively.
149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 3 - Investments - Continued
The carrying amount of mortgage loans by property type and geographic region are presented below.
December 31
2022
2021
(in millions of dollars)
Carrying
Amount
Percent of
Total
Carrying
Amount
Percent of
Total
$
$
$
$
688.6
745.3
423.0
534.5
44.0
2,435.4
52.4
192.4
313.0
181.4
539.3
101.8
212.6
298.7
543.8
2,435.4
28.3 % $
30.6
17.4
21.9
1.8
100.0 % $
2.2 % $
7.9
12.9
7.4
22.1
4.2
8.7
12.3
22.3
100.0 % $
780.0
734.4
467.2
533.3
45.5
2,560.4
54.9
214.7
298.4
193.1
582.1
120.7
243.2
290.6
562.7
2,560.4
30.5 %
28.7
18.2
20.8
1.8
100.0 %
2.1 %
8.4
11.7
7.5
22.7
4.7
9.6
11.3
22.0
100.0 %
Property Type
Apartment
Industrial
Office
Retail
Other
Total
Region
New England
Mid-Atlantic
East North Central
West North Central
South Atlantic
East South Central
West South Central
Mountain
Pacific
Total
The risk in our mortgage loan portfolio is primarily related to vacancy rates. Events or developments, such as economic
conditions that impact the ability of the borrowers to ensure occupancy of the property, may have a negative effect on our
mortgage loan portfolio, particularly to the extent that our portfolio is concentrated in an affected region or property type. An
increase in vacancies increases the probability of default, which would negatively affect our expected losses in our mortgage
loan portfolio.
We evaluate each of our mortgage loans individually for impairment and assign an internal credit quality rating based on a
comprehensive rating system used to evaluate the credit risk of the loan. The factors we use to derive our internal credit ratings
may include the following:
•
•
•
•
•
•
•
•
•
•
Loan-to-value ratio based on internal appraisal of property
Debt service coverage ratio based on current operating income
Property location, including regional economics, trends, and demographics
Age, condition, and construction quality of property
Current and historical occupancy of property
Lease terms relative to market
Tenant size and financial strength
Borrower's financial strength
Borrower's equity in transaction
Additional collateral, if any
Although all available and applicable factors are considered in our analysis, loan-to-value and debt service coverage ratios are
the most critical factors in determining whether we will initially issue the loan and also in assigning values and determining
impairment. We assign an overall rating to each loan using an internal rating scale of AA (highest quality) to B (lowest quality).
150
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 3 - Investments - Continued
We review and adjust, as needed, our internal credit quality ratings on an annual basis. This review process is performed more
frequently for mortgage loans deemed to have a higher risk of delinquency.
The following tables present information about mortgage loans by the applicable credit quality indicators:
December 31
2022
2021
(in millions of dollars)
Carrying Amount
Percent of Total
Carrying Amount
Percent of Total
Internal Rating
AA
A
BBB
BB
Total
$
$
92.3
843.9
1,458.0
41.2
2,435.4
3.8 % $
34.6
59.9
1.7
100.0 % $
Loan-to-Value Ratio(1)
<= 65%
> 65% <= 75%
> 75% <= 85%
> 85%
Total
(1)Loan-to Value Ratio utilizes the most recent internal appraisal of the property
1,389.6
937.2
75.0
33.6
2,435.4
$
$
57.0 % $
38.5
3.1
1.4
100.0 % $
27.3
709.6
1,802.6
20.9
2,560.4
1,346.1
1,076.8
114.9
22.6
2,560.4
1.1 %
27.7
70.4
0.8
100.0 %
52.6 %
42.0
4.5
0.9
100.0 %
The following table presents the amortized cost of our mortgage loans by year of origination and credit quality indicators for the
years ended December 31, 2022 and 2021:
Year Ended December 31, 2022
Prior to
2018
2018
2019
2020
(in millions of dollars)
2021
2022
Total
$
53.8 $
485.0
534.0
35.7
1,108.5
(4.3)
$ 1,104.2 $
27.5 $
123.3
219.8
5.9
376.5
(1.8)
374.7 $
11.1 $
96.8
236.9
—
344.8
(1.3)
343.5 $
— $
— $
35.9
134.0
—
169.9
80.6
275.8
—
356.4
(0.6)
169.3 $
(0.8)
355.6 $
— $
92.4
845.6
24.0
1,465.1
64.6
41.6
—
2,444.7
88.6
(9.3)
(0.5)
88.1 $ 2,435.4
$
782.6 $
230.2
67.5
28.2
1,108.5
189.0 $
181.6
—
5.9
376.5
193.9 $
150.9
—
—
344.8
81.3 $
80.1
8.5
—
169.9
(0.6)
169.3 $
128.9 $
227.5
—
—
356.4
(0.8)
355.6 $
16.9 $ 1,392.6
942.0
71.7
76.0
—
34.1
—
2,444.7
88.6
(0.5)
(9.3)
88.1 $ 2,435.4
Total Amortized Cost
Allowance for credit losses
Carrying Amount
(1)Loan-to Value Ratio utilizes the most recent internal appraisal of the property
(4.3)
$ 1,104.2 $
(1.3)
343.5 $
(1.8)
374.7 $
151
Internal Rating
AA
A
BBB
BB
Total Amortized Cost
Allowance for credit losses
Carrying Amount
Loan-to-Value Ratio(1)
<=65%
>65<=75%
>75%<=85%
>85%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 3 - Investments - Continued
Year Ended December 31, 2021
Prior to
2017
2017
$
3.3 $
— $
414.6
561.2
5.0
984.1
68.0
227.3
10.2
305.5
(2.6)
981.5 $
(1.4)
304.1 $
2018
2019
(in millions of dollars)
2020
2021
Total
24.0 $
71.1
283.3
6.0
384.4
(1.4)
383.0 $
— $
— $
28.9
331.9
—
360.8
17.6
163.1
—
180.7
(1.4)
359.4 $
(0.7)
180.0 $
— $
110.6
242.6
—
353.2
27.3
710.8
1,809.4
21.2
2,568.7
(8.3)
352.4 $ 2,560.4
(0.8)
Internal Rating
AA
A
BBB
BB
Total Amortized Cost
Allowance for credit losses
Carrying Amount
Loan-to-Value Ratio(1)
<=65%
>65<=75%
>75%<=85%
>85%
$
$
779.1 $
115.7
89.3
—
984.1
146.9 $
115.4
26.3
16.9
305.5
163.0 $
215.4
—
6.0
384.4
80.7 $
280.1
—
—
360.8
(1.4)
359.4 $
54.3 $
126.4
—
—
180.7
(0.7)
180.0 $
124.7 $ 1,348.7
1,081.5
228.5
115.6
—
22.9
—
2,568.7
353.2
(8.3)
352.4 $ 2,560.4
(0.8)
Total Amortized Cost
Allowance for credit losses
Carrying Amount
(1)Loan-to Value Ratio utilizes the most recent internal appraisal of the property
(2.6)
981.5 $
(1.4)
304.1 $
(1.4)
383.0 $
$
The following tables present a roll forward of allowance for expected credit losses by loan-to-value ratio for the years ended
December 31, 2022 and 2021:
Loan-to-Value Ratio(1)
<=65%
>65<=75%
>75%<=85%
>85%
Total
$
$
Year Ended December 31, 2022
Beginning of
Period
Current Period
Provisions
Write-Offs
(in millions of dollars)
Recoveries
End of Period
2.6 $
4.7
0.7
0.3
8.3 $
0.4 $
—
0.4
0.2
1.0 $
— $
—
—
—
— $
Year Ended December 31, 2021
— $
—
—
—
— $
3.0
4.7
1.1
0.5
9.3
Beginning of
Period
Current Period
Provisions
Write-Offs
(in millions of dollars)
Recoveries
End of Period
$
Loan-to-Value Ratio(1)
<=65%
>65<=75%
>75%<=85%
>85%
Total
(1)Loan-to Value Ratio utilizes the most recent internal appraisal of the property
3.4 $
7.3
1.3
1.1
13.1 $
(0.8) $
(2.6)
(0.6)
(0.8)
(4.8) $
$
— $
—
—
—
— $
— $
—
—
—
— $
2.6
4.7
0.7
0.3
8.3
152
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 3 - Investments - Continued
The increase in our estimate of expected losses during the year ended December 31, 2022 is primarily driven by heightened
uncertainty surrounding the future macroeconomic outlook and reflects market conditions as of December 31, 2022.The decrease
in our estimate of expected losses during the year ended December 31, 2021 is primarily due to improved economic conditions
and recovery from COVID-19, especially as it relates to underlying commercial real estate values, and reflects market conditions
at December 31, 2021.
There were no troubled debt restructurings during 2022, 2021 or 2020. At December 31, 2022, we held no mortgage loans that
were greater than 90 days past due regarding principal and/or interest payments.
We had no loan foreclosures for the years ended December 31, 2022, 2021, or 2020.
For the years ended December 31, 2022, 2021, and 2020 we had no impaired mortgage loans. We did not recognize any interest
income during 2022, 2021 or 2020 on mortgage loans subsequent to impairment.
For the years ended December 31, 2022 and 2021, we had commitments of $5.0 million and $26.3 million, respectively to fund
certain commercial mortgage loans. Consistent with how we determine the estimate of current expected credit losses for our
funded mortgage loans each period, we estimate expected credit losses for loans that have not been funded but we are committed
to fund at the end of each period. For the year ended December 31, 2022, we had a nominal amount of expected credit losses
related to unfunded commitments on our consolidated balance sheets. For the year ended December 31, 2021, we had
$0.1 million of expected credit losses related to unfunded commitments on our consolidated balance sheets.
Investment Real Estate
Our investment real estate balance was $71.6 million and $119.5 million at December 31, 2022 and 2021, respectively, and the
associated accumulated depreciation was $122.1 million and $171.3 million at December 31, 2022 and 2021, respectively. We
did not recognize any impairments related to our real estate during 2022 or 2021. For the year ended December 31, 2020, we
recognized $36.6 million in impairments related to certain of our real estate held for investment.
During the first quarter of 2022, we reclassified one property previously held for the production of income to property held for
sale. The carrying value of the property was $40.1 million and $40.9 million as of December 31, 2022 and December 31, 2021,
respectively, and is primarily recorded within our Corporate segment. The estimated fair value less cost to sell is above the
carrying value of the property, and we expect to close the sale of the property in the first quarter of 2023.
During the third quarter of 2022, we reclassified one property previously held for the production of income to property held for
sale. The property had a carrying value of $0.8 million as of December 31, 2022 and December 31, 2021, respectively, and is
recorded within our Corporate segment. The estimated fair value less cost to sell is above the carrying value for this property,
and we expect to close the sale of this property during 2023.
During the third quarter of 2022 we reclassified one additional property previously held for the production of income to property
held for sale. In November of 2022, we closed on the sale of this property. At the time of sale the carrying value of this property
was $3.4 million, and we recognized a nominal realized gain.
Transfers of Financial Assets
To manage our cash position more efficiently, we may enter into repurchase agreements with unaffiliated financial institutions.
We generally use repurchase agreements as a means to finance the purchase of invested assets or for short-term general business
purposes until projected cash flows become available from our operations or existing investments. Our repurchase agreements
are typically outstanding for less than 30 days. We post collateral through our repurchase agreement transactions whereby the
counterparty commits to purchase securities with the agreement to resell them to us at a later, specified date. The fair value of
collateral posted is generally 102 percent of the cash received.
Our investment policy also permits us to lend fixed maturity securities to unaffiliated financial institutions in short-term
securities lending agreements. These agreements increase our investment income with minimal risk. Our securities lending
policy requires that a minimum of 102 percent of the fair value of the securities loaned be maintained as collateral. We may
153
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 3 - Investments - Continued
receive cash and/or securities as collateral under these agreements. Cash received as collateral is typically reinvested in short-
term investments. If securities are received as collateral, we are not permitted to sell or re-post them.
As of December 31, 2022, the carrying amount of fixed maturity securities loaned to third parties under our securities lending
program was $152.4 million, for which we received collateral in the form of cash and securities of $88.5 million and $69.8
million, respectively. As of December 31, 2021, the carrying amount of fixed maturity securities loaned to third parties under
our securities lending program was $283.7 million, for which we received collateral in the form of cash and securities of $94.8
million and $198.6 million, respectively. We had no outstanding repurchase agreements at December 31, 2022 or 2021.
The remaining contractual maturities of our securities lending agreements disaggregated by class of collateral pledged are as
follows:
Borrowings
United States Government and Government Agencies and Authorities
State, Municipalities, and Political Subdivisions
Public Utilities
All Other Corporate Bonds
Total Borrowings
Gross Amount of Recognized Liability for Securities Lending Transactions
Amounts Related to Agreements Not Included in Offsetting Disclosure Contained
Herein
$
$
$
December 31
2022
2021
Overnight and Continuous
(in millions of dollars)
0.3 $
—
6.3
81.9
88.5 $
88.5
— $
0.1
0.1
3.1
91.5
94.8
94.8
—
Certain of our U.S. insurance subsidiaries are members of regional FHLBs. Membership, which requires that we purchase a
minimum amount of FHLB common stock on which we receive dividends, provides access to low-cost funding. Advances
received from the FHLB are used for the purchase of fixed maturity securities. Additional common stock purchases may be
required, based on the amount of funds we borrow from the FHLBs. The carrying value of common stock owned, collateral
posted, and advances received are as follows:
Carrying Value of FHLB Common Stock
Advances from FHLB
Carrying Value of Collateral Posted to FHLB
Fixed Maturity Securities
Commercial Mortgage Loans
Total Carrying Value of Collateral Posted to FHLB
Offsetting of Financial Instruments
December 31
2022
2021
(in millions of dollars)
17.1 $
99.1
22.1
160.9
527.1 $
801.9
1,329.0 $
786.1
930.0
1,716.1
$
$
$
We enter into master netting agreements with each of our derivative's counterparties. These agreements provide for conditional
rights of set-off upon the occurrence of an early termination event. An early termination event is considered a default, and it
allows the non-defaulting party to offset its contracts in a loss position against any gain positions or payments due to the
defaulting party. Under our agreements, default type events are defined as failure to pay or deliver as contractually agreed,
misrepresentation, bankruptcy, or merger without assumption. See Note 4 for further discussion of collateral related to our
derivative contracts.
154
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 3 - Investments - Continued
We have securities lending agreements with unaffiliated financial institutions that post collateral to us in return for the use of our
fixed maturity securities. A right of set-off exists that allows us to keep and apply collateral received in the event of default by
the counterparty. Default within a securities lending agreement would typically occur if the counterparty failed to return the
securities borrowed from us as contractually agreed. In addition, if we default by not returning collateral received, the
counterparty has a right of set-off against our securities or any other amounts due to us.
Shown below are our financial instruments that either meet the accounting requirements that allow them to be offset in our
balance sheets or that are subject to an enforceable master netting arrangement or similar agreement. Our accounting policy is to
not offset these financial instruments in our balance sheets. Net amounts disclosed below have been reduced by the amount of
collateral pledged to or received from our counterparties.
December 31, 2022
Gross Amount
of Recognized
Financial
Instruments
Gross Amount
Offset in
Balance Sheet
Gross Amount Not
Offset in Balance Sheet
Financial
Instruments
Cash
Collateral
Net Amount
Presented in
Balance Sheet
(in millions of dollars)
Net
Amount
Financial Assets:
Derivatives
Securities Lending
Total
Financial Liabilities:
Derivatives
Securities Lending
Total
$
$
$
$
89.1 $
152.4
241.5 $
74.0 $
88.5
162.5 $
— $
—
— $
— $
—
— $
89.1 $
152.4
241.5 $
(38.0) $
(63.9)
(101.9) $
(49.4) $
(88.5)
(137.9) $
74.0 $
88.5
162.5 $
(73.2) $
(88.5)
(161.7) $
— $
—
— $
1.7
—
1.7
0.8
—
0.8
December 31, 2021
Gross Amount
of Recognized
Financial
Instruments
Gross Amount
Offset in
Balance Sheet
Gross Amount Not
Offset in Balance Sheet
Financial
Instruments
Cash
Collateral
Net Amount
Presented in
Balance Sheet
(in millions of dollars)
Net
Amount
Financial Assets:
Derivatives
Securities Lending
Total
Financial Liabilities:
Derivatives
Securities Lending
Total
$
$
$
$
39.5 $
283.7
323.2 $
35.0 $
94.8
129.8 $
39.5 $
283.7
323.2 $
(9.8) $
(188.9)
(198.7) $
(28.4) $
(94.8)
(123.2) $
35.0 $
94.8
129.8 $
(34.0) $
(94.8)
(128.8) $
— $
—
— $
1.3
—
1.3
1.0
—
1.0
— $
—
— $
— $
—
— $
155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 3 - Investments - Continued
Net Investment Income
Net investment income reported in our consolidated statements of income is presented below.
Fixed Maturity Securities
Derivatives
Mortgage Loans
Policy Loans
Other Long-term Investments
Perpetual Preferred Securities1
Private Equity Partnerships2
Other
Short-term Investments
Gross Investment Income
Less Investment Expenses
Less Investment Income on Participation Fund Account Assets
Net Investment Income
$
$
2022
Year Ended December 31
2021
(in millions of dollars)
1,888.2 $
68.6
105.0
19.7
1,849.8 $
57.8
101.5
20.0
5.0
110.1
9.4
20.0
2,173.6
39.4
12.0
2,122.2 $
6.9
165.4
5.5
1.3
2,260.6
35.1
12.3
2,213.2 $
2020
2,164.0
78.7
108.9
20.0
(2.1)
19.8
3.9
10.5
2,403.7
30.6
12.4
2,360.7
1 The net unrealized gain (loss) recognized in net investment income for the year ended December 31, 2022 related to perpetual
preferred securities still held at December 31, 2022 was $2.8 million. The net unrealized gain (loss) recognized in net
investment income for the years ended December 31, 2021 and 2020 related to perpetual preferred securities still held at year-
end was $4.4 million and $(4.6) million, respectively
2 Represents a net unrealized gain for the year ended December 31, 2022 related to private equity partnerships still held at
December 31, 2022 of $124.1 million, reduced by net management fees and partnership expenses of $(14.0) million. For the
years ended December 31, 2021 and 2020, the net unrealized gain related to private equity partnerships still held at year-end was
$177.7 million and $29.1 million, respectively, reduced by net management fees and partnership expenses of $(12.3) million and
$(9.3) million, respectively. See Note 2 for further discussion of private equity partnerships.
156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 3 - Investments - Continued
Investment Gain and Loss
Investment gains and losses are as follows:
Fixed Maturity Securities
Gross Gains on Sales1
Gross Losses on Sales
Credit Losses
Mortgage Loans and Other Invested Assets
Gross Gains on Sales
Gross Losses on Sales
Impairment Loss
Change in Allowance for Credit Losses
Embedded Derivative in Modified Coinsurance Arrangement
All Other Derivatives
Foreign Currency Transactions
Net Investment Gain (Loss)
2022
Year Ended December 31
2021
(in millions of dollars)
2020
$
$
2.3 $
(28.8)
(4.6)
1.4
—
—
(1.0)
16.2
2.6
(3.8)
(15.7) $
76.2 $
(11.5)
(9.3)
5.8
—
—
4.7
9.7
3.1
(2.0)
76.7 $
1,332.8
(20.3)
(53.6)
1.9
(0.3)
(36.6)
(4.6)
(17.0)
(2.5)
(0.7)
1,199.1
1Gross gains on sales of fixed maturity securities for the year ended December 31, 2021 includes gains of $67.6 million as a
result of the second phase of the reinsurance transaction that we completed during the first quarter of 2021. Gross gains on sales
of fixed maturity securities for the year ended December 31, 2020 includes gains of $1,302.3 million as a result of the first phase
of the reinsurance transaction that we completed during the fourth quarter of 2020. See Note 12 for further discussion.
157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 4 - Derivative Financial Instruments
Purpose of Derivatives
We are exposed to certain risks relating to our ongoing business operations. The primary risks managed by using derivative
instruments are interest rate risk, risk related to matching duration for our assets and liabilities, foreign currency risk, credit risk,
and equity risk. Historically, we have utilized current and forward interest rate swaps, current and forward currency swaps,
forward benchmark interest rate locks, currency forward contracts, forward contracts on specific fixed income securities, credit
default swaps, and total return swaps. Transactions hedging interest rate risk are primarily associated with our individual and
group long-term care and individual and group disability products. All other product portfolios are periodically reviewed to
determine if hedging strategies would be appropriate for risk management purposes. We do not use derivative financial
instruments for speculative purposes.
Derivatives designated as cash flow hedges and used to reduce our exposure to interest rate and duration risk are as follows:
•
•
Interest rate swaps were used to hedge interest rate risks and to improve the matching of assets and liabilities. An
interest rate swap is an agreement in which we agree with other parties to exchange, at specified intervals, the difference
between fixed rate and variable rate interest amounts. We used interest rate swaps to hedge the anticipated purchase of
fixed maturity securities thereby protecting us from the potential adverse impact of declining interest rates on the
associated policy reserves. We also used interest rate swaps to hedge the potential adverse impact of rising interest
rates in anticipation of issuing fixed rate long-term debt.
Forward benchmark interest rate locks are used to minimize interest rate risk associated with the anticipated purchase
or disposal of fixed maturity securities or the anticipated issuance of fixed rate long term debt. A forward benchmark
interest rate lock is a derivative contract without an initial investment where we and the counterparty agree to purchase
or sell a specific benchmark interest rate fixed maturity bond at a future date at a pre-determined price or yield.
Derivatives designated as fair value hedges and previously used to reduce our exposure to interest rate and duration risk
included:
•
Interest rate swaps were used to effectively convert certain fixed rate, long-term debt into floating rate long-term debt.
Under these swap agreements, we received a fixed rate of interest and paid a variable rate of interest.
Derivatives designated as either cash flow or fair value hedges and used to reduce our exposure to foreign currency risk are as
follows:
•
Foreign currency interest rate swaps are used to hedge the currency risk of certain foreign currency-denominated fixed
maturity securities owned for portfolio diversification. Under these swap agreements, we agree to pay, at specified
intervals, fixed rate foreign currency-denominated principal and interest payments in exchange for fixed rate payments
in the functional currency of the operating segment.
Derivatives not designated as hedging instruments and used to reduce our exposure to foreign currency risk, credit losses on
securities owned, and volatility of the underlying deferred assets in our non-qualified defined contribution plan are as follows:
•
Foreign currency interest rate swaps previously designated as hedges were used to hedge the currency risk of certain
foreign currency-denominated fixed maturity securities owned for portfolio diversification. These derivatives were
effective hedges prior to novation to a new counterparty. In conjunction with the novation, these derivatives were de-
designated as hedges. We agree to pay, at specified intervals, fixed rate foreign currency-denominated principal and
interest payments in exchange for fixed rate payments in the functional currency of the operating segment. We hold
offsetting swaps wherein we agree to pay fixed rate principal and interest payments in the functional currency of the
operating segment in exchange for fixed rate foreign currency-denominated payments.
158
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 4 - Derivative Financial Instruments - Continued
•
•
•
Credit default swaps were used as economic hedges against credit risk but do not qualify for hedge accounting. A
credit default swap is an agreement in which we agree with another party to pay, at specified intervals, a fixed-rate fee
in exchange for insurance against a credit event on a specific investment. If a defined credit event occurred, our
counterparty could have either paid us a net cash settlement, or we could have surrendered the specific investment to
them in exchange for cash equal to the full notional amount of the swap. Credit events typically include events such as
bankruptcy, failure to pay, or certain types of debt restructuring.
Foreign currency forward contracts are used to minimize foreign currency risk. A foreign currency forward is a
derivative without an initial investment where we and the counterparty agree to exchange a specific amount of
currencies, at a specific exchange rate, on a specific date. We use these forward contracts to hedge the currency risk
arising from foreign-currency denominated investments.
Total Return Swaps are used to economically hedge a portion of the liability related to our non-qualified defined
contribution plan. A total return swap is an agreement in which we pay a floating rate of interest to the counterparty
and receive the total return on a portfolio of exchange traded funds. These swaps are cash settled on the last day of
every month and the notional is re-established each month based on periodic distributions from and contributions to the
plan assets.
Derivative Risks
The basic types of risks associated with derivatives are market risk (that the value of the derivative will be adversely impacted by
changes in the market, primarily the change in interest and exchange rates) and credit risk (that the counterparty will not perform
according to the terms of the contract). The market risk of the derivatives should generally offset the market risk associated with
the hedged financial instrument or liability. 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. Credit exposure on derivatives is
limited to the value of those contracts in a net gain position, including accrued interest receivable less collateral held. At
December 31, 2022 and 2021, we had $1.7 million and $1.3 million credit exposure on derivatives, respectively. The table
below summarizes the nature and amount of collateral received from and posted to our derivative counterparties.
Carrying Value of Collateral Received from Counterparties
Cash
Carrying Value of Collateral Posted to Counterparties
Cash
Fixed Maturity Securities
December 31
2022
2021
(in millions of dollars)
$
$
$
49.4 $
5.1 $
39.6
44.7 $
32.0
—
27.6
27.6
See Note 3 for further discussion of our master netting agreements.
The majority of our derivative instruments contain provisions that require us to maintain specified issuer credit ratings and
financial strength ratings. Should our ratings fall below these specified levels, we would be in violation of the provisions, and
our derivatives counterparties could terminate our contracts and request immediate payment. The aggregate fair value of all
derivative instruments with credit risk-related contingent features that were in a liability position was $74.0 million and $35.0
million at December 31, 2022 and 2021, respectively.
159
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 4 - Derivative Financial Instruments - Continued
Cash Flow Hedges
As of December 31, 2022 and 2021, we had $168.9 million and $181.3 million, respectively, notional amount of receive fixed,
pay fixed, open current and forward foreign currency interest rate swaps to hedge fixed income foreign currency-denominated
securities.
During 2022 we entered into $779.0 million of notional forward benchmark interest rate locks in order to hedge the anticipated
purchase of fixed maturity securities. As of December 31, 2022, we had $764.0 million notional amount of forward benchmark
interest rate locks.
During 2021, we entered into a $250.0 million notional forward benchmark interest rate lock in order to hedge the interest rate
risk associated with the cash flows related to the early redemption of certain of our debt securities. We terminated the interest
rate lock in 2021 and recognized a loss of $1.2 million that was reported as a cost related to the early retirement of debt in our
income statement.
During the fourth quarter of 2020 and the first quarter of 2021, in connection with the Closed Block individual disability
reinsurance transaction, we reclassified $30.7 million and $0.6 million, respectively, of deferred gains from accumulated other
comprehensive income into earnings included in the net investment gain (loss) line item on our income statement. The deferred
gains were related to previously terminated interest rate swaps designated as hedging instruments of fixed maturity securities in
the Closed Block individual disability product line. See Note 12 for further discussion.
As of December 31, 2022, we expect to amortize approximately $35.4 million of net deferred gains on derivative instruments
during the next twelve months. This amount will be reclassified from accumulated other comprehensive income into earnings
and reported on the same income statement line item as the hedged item. The income statement line items that will be affected
by this amortization are net investment income and interest and debt expense. Additional amounts that may be reclassified from
accumulated other comprehensive income into earnings to offset the earnings impact of foreign currency translation of hedged
items are not estimable.
As of December 31, 2022, we are hedging the variability of future cash flows associated with forecasted transactions through the
year 2052.
Fair Value Hedges
As of December 31, 2022 and 2021, we had $557.8 million and $498.5 million notional amount of receive fixed, pay fixed, open
current and forward foreign currency interest rate swaps to hedge fixed income foreign currency-denominated securities.
The following table summarizes the carrying amount of hedged assets and the related cumulative basis adjustments related to our
fair value hedges:
Carrying Amount of Hedged Assets
Cumulative Amount of Fair Value Hedging
Adjustment Included in the Carrying Amount of
the Hedged Assets
December 31, 2022
December 31, 2021
December 31, 2022
December 31, 2021
(in millions of dollars)
Fixed maturity securities:
Receive fixed functional
currency interest, pay
fixed foreign currency
interest
$
394.4 $
466.3 $
(24.8) $
2.0
For the years ended December 31, 2022, 2021, and 2020, $17.6 million, $16.6 million, and $(1.8) million, respectively, of the
derivative instruments' gain (loss) was excluded from the assessment of hedge effectiveness. There were no instances wherein
we discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge.
160
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 4 - Derivative Financial Instruments - Continued
Derivatives not Designated as Hedging Instruments
As of December 31, 2022 and 2021, we held $132.0 million and $148.2 million, respectively, notional amount of receive fixed,
pay fixed, foreign currency interest rate swaps. These derivatives are not designated as hedges, and as such, changes in fair
value related to these derivatives are reported in earnings as a component of net investment gain or loss.
As of December 31, 2022, we held no single name credit default swaps. As of December 31, 2021, we held $11.6 million,
respectively, notional amount of single name credit default swaps. We entered into these swaps in order to mitigate the credit
risk associated with specific securities owned.
As of December 31, 2022 and 2021, we held $54.3 million and $41.7 million, respectively, notional amount of foreign currency
forwards to mitigate the foreign currency risk associated with specific securities owned.
As of December 31, 2022 and 2021, we held $76.9 million and $89.2 million, respectively, notional amount of total return swaps
to mitigate the volatility associated with changes in the fair value of the underlying notional assets in our non-qualified defined
contribution plan. This derivative is an economic hedge not designated as a hedging instrument, and changes in fair value are
reported as a component of other expenses in our income statement.
We have an embedded derivative in a modified coinsurance arrangement for which we include in our net 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. There are no credit-related counterparty triggers, and any accumulated embedded derivative gain or loss reduces to
zero over time as the reinsured business winds down.
161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 4 - Derivative Financial Instruments - Continued
Locations and Amounts of Derivative Financial Instruments
The following tables summarize the notional amounts and fair values of derivative financial instruments, as reported in our
consolidated balance sheets. Derivative assets are included in other long-term investments, while derivative liabilities are
included in other liabilities within our consolidated balance sheets. The notional amounts represent the basis upon which our
counterparty pay and receive amounts are calculated.
Designated as Hedging Instruments
Cash Flow Hedges
Forward Benchmark Interest Rate Locks
Foreign Currency Interest Rate Swaps
Total Cash Flow Hedges
Fair Value Hedges
Foreign Currency Interest Rate Swaps
Total Designated as Hedging Instruments
Not Designated as Hedging Instruments
Foreign Currency Forwards
Foreign Currency Interest Rate Swaps
Total Return Swaps
Embedded Derivative in Modified Coinsurance
Arrangement
Total Not Designated as Hedging Instruments
Total Derivatives
$
$
$
$
$
Notional
Amount
December 31, 2022
Derivative Assets
Fair
Value
(in millions of dollars)
Derivative Liabilities
Fair
Value
764.0 $
168.9
932.9
1.6 $
17.5
19.1
557.8
66.0
1,490.7 $
85.1 $
54.3 $
132.0
76.9
—
263.2 $
4.0 $
—
—
—
4.0 $
1,753.9 $
89.1 $
48.4
3.1
51.5
5.4
56.9
0.1
17.0
—
13.9
31.0
87.9
162
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 4 - Derivative Financial Instruments - Continued
Designated as Hedging Instruments
Cash Flow Hedges
Foreign Currency Interest Rate Swaps
Fair Value Hedges
Foreign Currency Interest Rate Swaps
Total Designated as Hedging Instruments
Not Designated as Hedging Instruments
Credit Default Swaps
Foreign Currency Forwards
Foreign Currency Interest Rate Swaps
Total Return Swaps
Embedded Derivative in Modified Coinsurance
Arrangement
Total Not Designated as Hedging Instruments
Total Derivatives
$
$
$
$
$
Notional
Amount
December 31, 2021
Derivative Assets
Fair
Value
(in millions of dollars)
Derivative Liabilities
Fair
Value
181.3 $
16.2 $
7.0
498.5
21.9
679.8 $
38.1 $
11.6 $
41.7
148.2
89.2
—
290.7 $
— $
—
1.4
—
—
1.4 $
970.5 $
39.5 $
5.7
12.7
—
—
22.3
—
30.1
52.4
65.1
163
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 4 - Derivative Financial Instruments - Continued
The following tables summarize the location of gains and losses of derivative financial instruments designated as hedging
instruments, as reported in our consolidated statements of income.
Total Income and Expense Presented in the Consolidated Statements
of Income of Which Hedged Items are Recorded
$
2,122.2 $
(15.7) $
188.5
Year Ended December 31, 2022
Net Investment
Income
Net Investment
Gain (Loss)
(in millions of dollars)
Interest and
Debt Expense
Gain (Loss) on Cash Flow Hedging Relationships
Interest Rate Swaps:
Hedged items
Derivatives Designated as Hedging Instruments
Foreign Exchange Contracts:
Hedged items
Derivatives Designated as Hedging Instruments
Forward Benchmark Interest Rate Locks:
Hedged items
Gain (Loss) on Fair Value Hedging Relationships
Foreign Exchange Contracts:
Hedged items
Derivatives Designated as Hedging Instruments
200.0
51.0
12.3
(0.8)
—
—
(2.3)
1.8
0.5
—
11.6
7.3
(26.8)
26.8
2.9
—
—
—
—
—
—
Year Ended December 31, 2021
Net Investment
Income
Net Investment
Gain (Loss)
(in millions of dollars)
Interest and
Debt Expense
Total Income and Expense Presented in the Consolidated Statements
of Income of Which Hedged Items are Recorded
$
2,213.2 $
76.7 $
185.0
Gain (Loss) on Cash Flow Hedging Relationships
Interest Rate Swaps:
Hedged items
Derivatives Designated as Hedging Instruments
Foreign Exchange Contracts:
Hedged items
Derivatives Designated as Hedging Instruments
Gain (Loss) on Fair Value Hedging Relationships
Foreign Exchange Contracts:
Hedged items
Derivatives Designated as Hedging Instruments
220.4
64.6
13.0
1.8
2.7
2.0
(0.1)
(0.1)
9.8
4.6
(22.3)
22.3
29.2
5.0
—
—
—
—
164
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 4 - Derivative Financial Instruments - Continued
Total Income and Expense Presented in the Consolidated Statements
of Income of Which Hedged Items are Recorded
$
2,360.7 $
1,199.1 $
188.2
Year Ended December 31, 2020
Net Investment
Income
Net Investment
Gain (Loss)
(in millions of dollars)
Interest and
Debt Expense
Gain (Loss) on Cash Flow Hedging Relationships
Interest Rate Swaps:
Hedged items
Derivatives Designated as Hedging Instruments
Foreign Exchange Contracts:
Hedged items
Derivatives Designated as Hedging Instruments
Gain (Loss) on Fair Value Hedging Relationships
Interest Rate Swaps:
Hedged items
Derivatives Designated as Hedging Instruments
Foreign Exchange Contracts:
Hedged items
Derivatives Designated as Hedging Instruments
286.1
75.9
12.1
2.5
—
—
7.1
2.8
397.7
32.0
(0.1)
0.1
(0.6)
0.6
23.3
(23.3)
29.2
1.7
—
—
10.1
(0.9)
—
—
165
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 4 - Derivative Financial Instruments - Continued
The following table summarizes the location of gains and losses of derivative financial instruments designated as cash flow
hedging instruments, as reported in our consolidated statements of comprehensive income (loss).
2022
Year Ended December 31
2021
(in millions of dollars)
2020
Gain (Loss) Recognized in Other Comprehensive Income (Loss) on
Derivatives
Forwards
Foreign Exchange Contracts
Total
$
$
(49.8) $
7.4
(42.4) $
(0.6) $
2.2
1.6 $
—
(5.4)
(5.4)
The following table summarizes the location of gains and losses on our derivatives not designated as hedging instruments, as
reported in our consolidated statements of income.
Net Investment Gain (Loss)
Credit Default Swaps
Foreign Exchange Contracts
Embedded Derivative in Modified Coinsurance Arrangement
Total
Other Expenses
(Gain) Loss on Total Return Swaps
2022
Year Ended December 31
2021
(in millions of dollars)
2020
$
$
$
— $
2.7
16.2
18.9 $
(0.3) $
3.4
9.7
12.8 $
(0.5)
(2.0)
(17.0)
(19.5)
18.9 $
(8.5) $
—
166
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 5 - Accumulated Other Comprehensive Income (Loss)
Components of our accumulated other comprehensive income (loss), after tax, and related changes are as follows:
Net
Unrealized
Gain (Loss)
on Securities
Net Gain
(Loss) on
Hedges
Foreign
Currency
Translation
Adjustment
Unrecognized
Pension and
Postretirement
Benefit Costs
Total
(in millions of dollars)
Balances at December 31, 2019
$
615.9 $
187.8 $
(281.6) $
(484.8) $
37.3
Other Comprehensive Income (Loss) Before
Reclassifications
Amounts Reclassified from Accumulated
Other Comprehensive Income or Loss
Net Other Comprehensive Income (Loss)
Balances at December 31, 2020
Other Comprehensive Income (Loss)
Before Reclassifications
Amounts Reclassified from Accumulated
Other Comprehensive Income or Loss
Net Other Comprehensive Income (Loss)
Balances at December 31, 2021
Other Comprehensive Income (Loss)
Before Reclassifications
Amounts Reclassified from Accumulated
Other Comprehensive Income or Loss
Net Other Comprehensive Income (Loss)
Balances at December 31, 2022
405.6
(5.7)
20.3
(60.8)
359.4
46.2
451.8
1,067.7
(84.3)
(90.0)
97.8
—
20.3
(261.3)
15.6
(45.2)
(530.0)
(22.5)
336.9
374.2
(169.9)
14.7
(12.6)
116.3
(51.5)
64.4
(105.5)
962.2
(50.7)
(36.0)
61.8
—
(12.6)
(273.9)
17.7
134.0
(396.0)
31.4
(20.1)
354.1
(3,009.2)
(30.4)
(115.2)
49.7
(3,105.1)
23.2
(2,986.0)
(2,023.8) $
$
(41.0)
(71.4)
(9.6) $
—
(115.2)
(389.1) $
12.2
61.9
(334.1) $
(5.6)
(3,110.7)
(2,756.6)
The net unrealized gain (loss) on securities consists of the following components:
December 31
Fixed Maturity Securities
Deferred Acquisition Costs
Reserves for Future Policy and Contract
Benefits
Reinsurance Recoverable
Income Tax
Total
2020
2022
2021
2019
(in millions of dollars)
$ (2,984.4) $ 5,949.3 $ 7,597.6 $ 6,364.4 $ (8,933.7) $ (1,648.3) $ 1,233.2
(22.4)
(62.7)
(85.1)
(70.4)
11.3
2022
81.7
2020
14.7
Change for the Year Ended
December 31
2021
566.7
(18.1)
400.7
(4,659.5) (6,225.6) (5,803.1) 5,226.2
(422.5)
(224.5)
(112.0)
$ (2,023.8) $ 962.2 $ 1,067.7 $ 615.9 $ (2,986.0) $ (105.5) $ 451.8
(150.2)
790.0
424.7
(307.4)
132.1
(389.3)
200.2
(419.4)
(68.1)
30.1
1,566.1
167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 5 - Accumulated Other Comprehensive Income (Loss) - Continued
Amounts reclassified from accumulated other comprehensive income (loss) were recognized in our consolidated statements of
income as follows:
Net Unrealized Loss on Securities
Net Investment Gain (Loss)
Gain (Loss) on Sales on Securities
Credit Losses on Fixed Maturity Securities
Loss on Benefits and Change in Reserves for Future Benefits
Income Tax Benefit
Total
Net Gain (Loss) on Hedges
Net Investment Income
Gain on Interest Rate Swaps and Forwards
Gain (Loss) on Foreign Exchange Contracts
Net Investment Gain (Loss)
Gain on Interest Rate Swaps
Gain (Loss) on Foreign Exchange Contracts
Interest and Debt Expense
Loss on Interest Rate Swaps
Income Tax Expense
Total
Unrecognized Pension and Postretirement Benefit Costs
Other Expenses
Amortization of Net Actuarial Loss
Amortization of Prior Service Credit
Curtailment Gain
Income Tax Benefit
Total
2022
Year Ended December 31
2021
(in millions of dollars)
2020
$
$
$
$
$
$
(24.8) $
(4.6)
—
(29.4)
(6.2)
(23.2) $
60.8 $
(9.3)
(133.1)
(81.6)
(17.2)
(64.4) $
1,279.7
(53.6)
(1,284.5)
(58.4)
(12.2)
(46.2)
51.1 $
(1.0)
60.6 $
1.7
—
1.8
—
51.9
10.9
41.0 $
(15.7) $
0.2
—
(15.5)
(3.3)
(12.2) $
2.0
(0.1)
—
64.2
13.5
50.7 $
(22.6) $
0.2
—
(22.4)
(4.7)
(17.7) $
74.1
2.0
32.0
0.1
(1.5)
106.7
22.4
84.3
(19.8)
0.1
(0.1)
(19.8)
(4.2)
(15.6)
168
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 6 - Liability for Unpaid Claims and Claim Adjustment Expenses
Changes in the liability for unpaid claims and claim adjustment expenses are as follows:
2022
Balance at January 1
Less Reinsurance Recoverable
Net Balance at January 1
$
2021
(in millions of dollars)
24,180.2 $
8,378.9
15,801.3
23,664.7 $
8,697.8
14,966.9
2020
23,076.7
2,246.8
20,829.9
Incurred Related to
Current Year
Prior Years
Interest
All Other Incurred
Foreign Currency
Total Incurred
Paid Related to
Current Year
Prior Years
Total Paid
6,721.3
7,252.6
6,327.8
595.6
(646.0)
(235.9)
6,435.0
683.4
(719.5)
(23.4)
7,193.1
997.8
878.7
65.9
8,270.2
(3,062.9)
(3,786.0)
(6,848.9)
(3,263.4)
(3,774.1)
(7,037.5)
(2,727.0)
(4,430.3)
(7,157.3)
Reserves Ceded Pursuant to Reinsurance Transaction
—
(990.0)
(6,141.5)
Net Balance at December 31
Plus Reinsurance Recoverable
Balance at December 31
14,553.0
8,279.8
22,832.8 $
14,966.9
8,697.8
23,664.7 $
15,801.3
8,378.9
24,180.2
$
The majority of the net balances are related to disability claims with long-tail payouts on which interest earned on assets backing
liabilities is an integral part of pricing and reserving. Interest accrued on prior year reserves has been calculated on the opening
reserve balance less one-half of the year’s claim payments relative to prior years at our average reserve discount rate for the
respective periods.
"Incurred Related to Prior Years - All Other Incurred" shown in the preceding chart reflects the current year development of the
prior year unpaid claims and claim adjustment expenses. For all years presented this line item includes reserve assumption
updates as discussed in the following paragraphs. For 2021 and 2020, this amount includes the increase in benefits and change
in reserves for future benefits resulting from the realization of previously unrealized investment gains and losses as a result of
both phases of the Closed Block individual disability reinsurance transaction. Excluding the reserve assumption updates and
impacts from the reinsurance transaction, the variability exhibited year over year is primarily caused by the level of claim
resolutions in the period relative to the long-term expectations reflected in the reserves, primarily in our Unum US group long-
term disability and Closed Block long-term care product lines. 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.
169
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 6 - Liability for Unpaid Claims and Claim Adjustment Expenses - Continued
Reserve Assumption Updates
During 2022, we completed our annual review of policy and claim reserve adequacy, which incorporated our most recent
experience and included a review of all material assumptions. Based on our analysis, during 2022, we updated our reserve
assumptions to reflect our current estimate of future benefits obligations and determined that our claim reserves in our Unum US
group long-term disability product line and our waiver of premium reserves for our Unum US group life product line should be
reduced by $121.0 million and $34.0 million, respectively, due primarily to sustained improvement in claim recovery trends
since our last assumption update, partially offset by lower social security benefit offsets for our group long-term disability
product line. As a result, a reduction of approximately $155.0 million, which can be primarily attributed to prior year incurred
claims, impacts the results shown in the preceding chart. We also increased our claim reserves for the reinsured portion of our
Closed Block individual disability product line by $193.9 million resulting primarily from updates to mortality assumptions for
the advanced age portion of our claimant population. This increase is entirely related to the block that was ceded as a part of the
Closed Block individual disability reinsurance transaction with Commonwealth Annuity and Life Insurance Company
(Commonwealth). As a result, the increase in the Closed Block individual disability claim reserves had no impact on the net
activity shown in the preceding chart.
During 2021, we completed our annual review of policy and claim reserve adequacy, which incorporated our most recent
experience and included a review of all material assumptions. Based on our analysis, during 2021, we updated our reserve
assumptions and determined that our claim reserves should be reduced by $215.0 million in our Unum US group long-term
disability product line due primarily to sustained improvement in claim recovery trends since our last assumption update. We
also increased our claim reserves for our Closed Block long-term care and individual disability product lines by $2.1 million and
$6.4 million, respectively, to reflect our current estimate of future benefit obligations. As a result, a net reduction of
approximately $206.5 million, which can be primarily attributed to prior year incurred claims, impacts the results shown in the
preceding chart. We also increased policy reserves in our Closed Block group pension product line by $25.1 million as a result
of this review which did not affect the results shown in the preceding chart.
During 2020, we completed our annual review of policy reserve adequacy, which incorporated our most recent experience and
included a review of all material assumptions. Based on our analysis, during 2020, we updated our interest rate and premium
rate increase reserve assumptions and determined that our Closed Block long-term care policy and claim reserves should be
increased by $151.5 million, of which $7.0 million was related to our liability for unpaid claims and claims adjustment expenses,
which can be primarily attributed to prior year incurred claims, thereby impacting the results shown in the preceding chart. We
also increased policy reserves in our Closed Block group pension product line by $17.5 million as a result of this review which
did not affect the results shown in the preceding chart.
Closed Block Individual Disability Reinsurance Transaction
In connection with the first phase of the Closed Block individual disability reinsurance transaction that closed in December 2020,
we recorded a reinsurance recoverable of $6,141.5 million representing the ceded reserves related to the cohort of policies on
claim status as of July 1, 2020 (DLR cohort) and an increase in benefits and change in reserves for future benefits of
$1,284.5 million resulting from the realization of previously unrealized investment gains and losses recorded in accumulated
other comprehensive income (loss). In connection with the second phase of the Closed Block individual disability transaction
that closed in March 2021, we recorded a reinsurance recoverable of $990.0 million representing the ceded reserves related to the
cohort of policies on claim status as of January 1, 2021 and an increase in benefits and change in reserves for future benefits of
$133.1 million resulting from the realization of previously unrealized investment gains and losses recorded in accumulated other
comprehensive income (loss). These impacts are reflected in the chart shown above and the reconciliation shown below. See
Note 12 for further discussion regarding the total impacts of the Closed Block individual disability reinsurance transaction.
170
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 6 - Liability for Unpaid Claims and Claim Adjustment Expenses - Continued
Reconciliation
A reconciliation of policy and contract benefits and reserves for future policy and contract benefits as reported in our
consolidated balance sheets to the liability for unpaid claims and claim adjustment expenses is as follows:
Policy and Contract Benefits
Reserves for Future Policy and Contract Benefits
Total
Less:
Life Reserves for Future Policy and Contract Benefits
Accident and Health Active Life Reserves
Adjustment Related to Unrealized Investment Gains (Losses)
Liability for Unpaid Claims and Claim Adjustment Expenses
2022
December 31
2021
(in millions of dollars)
1,907.7 $
48,007.5
49,915.2
1,839.8 $
42,330.2
44,170.0
2020
1,855.4
49,653.0
51,508.4
$
8,428.5
13,475.4
(566.7)
22,832.8 $
$
8,457.1
13,133.9
4,659.5
23,664.7 $
8,371.7
12,730.9
6,225.6
24,180.2
The adjustment related to unrealized investment gains and losses reflects the changes that would be necessary to policyholder
liabilities if the unrealized investment gains and losses related to the corresponding available-for-sale securities had been
realized. Changes in this adjustment are reported as a component of other comprehensive income or loss.
171
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 7 - Income Tax
Total income tax expense (benefit) is allocated as follows:
2022
Net Income
Stockholders' Equity - Accumulated Other Comprehensive Income (Loss)
Change in Net Unrealized Gain (Loss) on Securities Before Adjustment
Change in Adjustment to Deferred Acquisition Costs and Reserves for
Future Policy and Contract Benefits, Net of Reinsurance
Change in Net Gain (Loss) on Hedges
Change in Foreign Currency Translation Adjustment
Change in Unrecognized Pension and Postretirement Benefit Costs
Total
$
$
Year Ended December 31
2021
(in millions of dollars)
238.8 $
317.2 $
2020
171.0
(1,890.8)
(346.9)
250.2
1,100.8
(19.2)
(0.1)
18.9
(473.2) $
316.8
(9.8)
4.2
42.1
245.2 $
(138.2)
(23.8)
(4.3)
(34.8)
220.1
A reconciliation of the income tax provision at the U.S. federal statutory rate to the income tax rate as reported in our
consolidated statements of income is as follows:
Statutory Income Tax
Net Operating Loss Carryback
Tax Exempt Income
Tax Credits
Policyholder Reserves
Other Items, Net
Effective Tax
Year Ended December 31
2021
2022
2020
21.0 %
—
(1.1)
(0.3)
(1.9)
1.7
19.4 %
21.0 %
(0.7)
(1.1)
(0.9)
2.4
1.8
22.5 %
21.0 %
(3.8)
(0.8)
(1.3)
0.7
1.9
17.7 %
172
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 7 - Income Tax - Continued
Our net deferred tax asset (liability) consists of the following.
December 31
2022
2021
(in millions of dollars)
Deferred Tax Asset
Invested Assets
Reserves
Employee Benefits
Other
Gross Deferred Tax Asset
Less: Valuation Allowance
Net Deferred Tax Asset
Deferred Tax Liability
Deferred Acquisition Costs
Fixed Assets
Invested Assets
Reserves
Cost of Reinsurance
Other
$
664.9 $
—
158.3
34.4
857.6
10.3
847.3
113.1
48.9
—
43.2
156.8
44.7
Gross Deferred Tax Liability
Net Deferred Tax Asset (Liability)
$
406.7
440.6 $
—
889.7
176.6
57.5
1,123.8
12.7
1,111.1
134.9
71.1
1,144.9
—
171.6
47.0
1,569.5
(458.4)
173
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 7 - Income Tax - Continued
Our consolidated statements of income include amounts subject to both domestic and foreign taxation. The income and
related tax expense (benefit) are as follows:
Income Before Tax
Domestic
Foreign
Total
Current Tax Expense (Benefit)
Federal
State and Local
Foreign
Total
Deferred Tax Expense (Benefit)
Federal
State and Local
Foreign
Total
$
$
$
2022
Year Ended December 31
2021
(in millions of dollars)
2020
1,492.8 $
138.6
1,631.4 $
957.0 $
106.0
1,063.0 $
924.7
39.3
964.0
306.5 $
12.7
154.3
473.5
180.7 $
2.6
29.5
212.8
(98.4)
1.5
(19.7)
(116.6)
20.9
1.1
(178.3)
(156.3)
13.3
(2.2)
14.9
26.0
250.5
1.0
36.1
287.6
Total Tax Expense
$
317.2 $
238.8 $
171.0
On June 10, 2021, the Finance Act 2021 was enacted, resulting in a U.K. tax increase from 19 percent to 25 percent, effective
April 1, 2023, which resulted in $24.2 million of additional tax expense in operating earnings for the revaluation of our deferred
tax assets and liabilities in 2021. On July 22, 2020, the Finance Act 2020 was enacted, resulting in a U.K. tax rate increase from
17 percent to 19 percent, retroactively effective April 1, 2020, which resulted in $9.3 million of additional tax expense for the
revaluation of our deferred tax assets and liabilities in 2020. In addition, we recorded a tax benefit of $36.5 million in 2020 for
tax losses that were carried back to a tax year in which the U.S. statutory tax rate was 35 percent pursuant to the Coronavirus
Aid, Relief, and Economic Security Act (CARES Act).
As of December 31, 2022, our plans for future repatriations of cash from our foreign subsidiaries can include no more than the
amount of capital above that which is required by U.K. regulatory capital requirements. The remainder of our investment in our
foreign subsidiaries is indefinitely reinvested.
Our consolidated statements of income include the following changes in unrecognized tax benefits.
Balance at Beginning of Year
Decreases for Tax Positions Related to Prior Years
Lapse of the Applicable Statute of Limitations
Balance at End of Year
Less Tax Attributable to Temporary Items Included Above
$
2022
December 31
2021
(in millions of dollars)
219.7 $
(20.9)
—
198.8
(84.7)
198.8 $
(21.0)
(0.4)
177.4
(63.5)
2020
241.0
(21.0)
(0.3)
219.7
(105.9)
Total Unrecognized Tax Benefits That if Recognized Would Affect the
Effective Tax Rate
$
113.9 $
114.1 $
113.8
174
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 7 - Income Tax - Continued
In 2018, we recorded $261.1 million gross unrecognized tax benefits for a policyholder reserves position taken on our 2017
federal tax return, which if recognized, would decrease our tax expense by $112.9 million. The balances of unrecognized tax
benefits for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such
deductibility are $63.5 million at December 31, 2022, $84.7 million at December 31, 2021, and $105.9 million at December 31,
2020. It is reasonably possible that this item could reverse in the next 12 months following review by the IRS. We recognize
interest expense and penalties, if applicable, related to unrecognized tax benefits in tax expense. We recognized $7.8 million,
$5.5 million, and $7.8 million of interest expense related to unrecognized tax benefits during 2022, 2021, and 2020, respectively.
The liability for net interest expense on uncertain tax positions was approximately $34.0 million, $26.2 million, and
$20.6 million as of December 31, 2022, 2021, and 2020, respectively.
We file federal and state income tax returns in the United States and in foreign jurisdictions. Tax year 2017 and tax years
subsequent to 2018 remain subject to examination by the IRS. All major foreign jurisdictions remain subject to examination for
tax years subsequent to 2020 with the exception of Poland for which tax years subsequent to 2016 remain subject to
examination. We believe sufficient provision has been made for all potential adjustments for years that are not closed by the
statute of limitations in all major tax jurisdictions and that any such adjustments would not have a material adverse effect on our
financial position, liquidity, or results of operations.
We file state income tax returns in nearly every state in the United States. Tax years subsequent to 2016 remain subject to
examination depending on the statute of limitation established by the various states, which is generally three to four years.
As of December 31, 2022, we have no federal net operating loss or capital loss carryforwards. We have net operating loss
carryforwards for state and local income tax of approximately $187.6 million, most of which is expected to expire unused
between 2023 and 2042.
We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. Our
valuation allowance was $10.3 million and $12.7 million at December 31, 2022 and 2021, respectively, the majority of which
related to our cumulative deferred state income tax benefits. The de minimis remaining amount of our valuation allowance
relates to unrealized tax losses on buildings which we own and occupy in the U.K. We recorded a decrease in our valuation
allowance of $2.4 million during 2022 and a decrease of $1.8 million in 2021, primarily in other comprehensive income.
Total income taxes paid during 2022 were $375 million. Total income taxes refunded during 2021 were $51 million. Total
income taxes paid during 2020 were $200 million.
175
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 8 - Debt
Debt consists of the following:
Outstanding Principal
Senior Notes issued 1998
Senior Notes issued 2002
Senior Notes issued 2012 and 2016
Senior Notes issued 2014
Senior Notes issued 2015
Senior Notes issued 2019
Senior Notes issued 2019
Senior Notes issued 2021
Medium-term Notes issued 1990 - 1996
Junior Subordinated Debt Securities issued 1998
Junior Subordinated Debt Securities issued 2018
Term Loan issued 2022
Less:
Unamortized Net Premium
Unamortized Debt Issuance Costs
Total Long-term Debt
Short-term Debt
$
Interest Rates
Maturities
6.750 - 7.250%
7.375%
5.750%
4.000%
3.875%
4.000%
4.500%
4.125%
7.000 - 7.190%
7.405%
6.250%
Variable
2028
2032
2042
2024
2025
2029
2049
2051
2023 - 2028
2038
2058
2027
December 31
2021
2022
(in millions of dollars)
335.8 $
39.5
500.0
—
275.0
400.0
450.0
600.0
18.5
189.7
300.0
350.0
335.8
39.5
500.0
350.0
275.0
400.0
450.0
600.0
20.5
203.7
300.0
—
2.5
(33.2)
3,427.8 $
2.3
(34.6)
3,442.2
$
Medium-term Notes Issued 1990
7.000%
2023
2.0
—
Total Debt
$
3,429.8 $
3,442.2
Long-term debt is comprised of our unsecured notes, which consist of our senior notes, medium-term notes, and term loan
facility, and rank highest in priority, followed by our junior subordinated debt securities. The senior notes are callable and may
be redeemed, in whole or in part, at any time. The term loan facility is callable and may be redeemed at par at any time. The
medium-term notes are non-callable and the junior subordinated debt securities are callable under limited, specified
circumstances.
The aggregate contractual principal maturities are $2.0 million in 2023, $275.0 million in 2025, $350.0 million in 2027 and
$2,833.5 million thereafter.
Unsecured Notes
In August 2022, we redeemed $350.0 million aggregate principal amount of our 4.000% senior notes due 2024, for which we
incurred costs of $3.0 million and has been recorded within cost related to the early retirement of debt in the consolidated
statements of income and is included within our Corporate segment.
In June 2021, we issued $600.0 million of 4.125% senior notes due 2051. The notes are callable at or above par and rank equally
in the right of payment with all of our other unsecured and unsubordinated debt.
In September 2020, our $400.0 million 5.625% senior unsecured notes matured.
176
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 8 - Debt- Continued
In May 2020, we issued $500.0 million of 4.500% senior notes due 2025. In June 2021, we purchased and retired these senior
notes, for which we incurred costs of $67.3 million and has been recorded within cost related to the early retirement of debt in
the consolidated statements of income and is included within our Corporate segment.
Term Loan Facility
In August 2022, we entered into a five-year $350.0 million senior unsecured delayed draw term loan facility with a syndicate of
lenders. Also in August 2022 , we drew the entire amount of the term loan facility, which is scheduled to mature in August
2027. Amounts due under the term loan facility incur interest based on the prime rate, the federal funds rate, or the Secured
Overnight Financing Rate (SOFR). The proceeds from the term loan facility were used to redeem $350.0 million aggregate
principal amount of our 4.000% senior notes due 2024.
Borrowings under the term loan facility are subject to financial covenants, negative covenants, and events of default that are
customary. The term loan facility includes financial covenants based on our leverage ratio and consolidated net worth.
Senior Secured Notes
In 2007, Northwind Holdings, LLC (Northwind Holdings), a wholly-owned subsidiary of Unum Group, issued $800.0 million of
insured, senior secured notes, bearing interest at a floating rate equal to the three month LIBOR plus 0.78% (the Northwind
notes) in a private offering.
Northwind Holdings made periodic principal payments on the Northwind notes of $45.0 million in 2020. In December 2020,
Northwind Holdings redeemed the remaining $35.0 million of principal on the Northwind notes, and was released of any
contractual collateral requirements.
Fair Value Hedges
As of December 31, 2019, we had $250.0 million notional amount of an interest rate swap which effectively converted certain of
our unsecured senior notes into floating rate debt. Under this agreement, we received a fixed rate of interest and paid a variable
rate of interest, based off of three-month LIBOR. During 2020, the $250.0 million notional amount of the interest rate swap
matured in conjunction with the maturity of the hedged debt. See Note 4 for further information on the interest rate swap.
Junior Subordinated Debt Securities
In 1998, Provident Financing Trust I (the Trust), a 100 percent-owned finance subsidiary of Unum Group, issued $300.0 million
of 7.405% capital securities due 2038 in a public offering. These capital securities 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. In connection with the capital securities offering, Unum Group issued to the Trust 7.405% junior subordinated
deferrable interest debentures due 2038. The Trust is a variable interest entity of which Unum Group is not the primary
beneficiary. Accordingly, the capital securities issued by the Trust are not included in our consolidated financial statements and
our liability represents the junior subordinated debt securities owed to the trust which is recorded in long-term debt. The sole
assets of the Trust are the junior subordinated debt securities. The retirement of any liquidation amount regarding the capital
securities by the Trust results in a corresponding retirement of principal amount of the junior subordinated debt securities.
In September 2022, pursuant to privately negotiated transactions, we purchased, and the Trust retired, $14.0 million aggregate
liquidation amount of the Trust's 7.405% capital securities due 2038, which resulted in the reduction of a corresponding principal
amount of our 7.405% junior subordinated debt securities due 2038 then held by the Trust. We incurred costs of $1.2 million
related to the early retirement of the junior subordinated debt securities.
Interest Paid
Interest paid on long-term and short-term debt and related securities during 2022, 2021, and 2020 was $172.9 million, $181.6
million, and $178.1 million, respectively.
177
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 8 - Debt- Continued
Credit Facilities
In April 2022, we amended and restated our existing credit agreement providing for a five-year $500.0 million senior unsecured
revolving credit facility with a syndicate of lenders. The credit facility, which was previously set to expire in April 2024, was
extended through April 2027. We may request that the lenders’ aggregate commitments of $500.0 million under the facility be
increased by up to an additional $200.0 million. Certain of our traditional U.S. life insurance subsidiaries, Unum Life Insurance
Company of America (Unum America), Provident Life and Accident Insurance Company (Provident), and Colonial Life &
Accident Insurance Company, joined the agreement and may borrow under the credit facility, and we can elect to add additional
insurance subsidiaries to the facility at any later date. Any obligation of a subsidiary under the credit facility is several only and
not joint and is subject to an unconditional guarantee by Unum Group. We may also request, on up to two occasions, that the
lenders' commitment termination dates be extended by one year. The credit facility also provides for the issuance of letters of
credit subject to certain terms and limitations. The credit facility provides for borrowings at an interest rate based on the prime
rate, the federal funds rate or the SOFR. At December 31, 2022, there were no borrowed amounts outstanding under the credit
facility and letters of credit totaling $0.4 million had been issued.
In the third quarter of 2021, we terminated our three-year, $100.0 million unsecured revolving credit facility, which was
originally set to expire in April 2022. There were no letters of credit issued from the credit facility and there were no borrowed
amounts outstanding at the time of termination. Also in the third quarter of 2021, we entered into a new five-year, £75 million
unsecured standby letter of credit facility with the same syndicate of lenders, pursuant to which a syndicated letter of credit was
issued in favor of Unum Limited (as beneficiary), our U.K. insurance subsidiary, and is available for drawings up to £75 million
until its scheduled expiration in July 2026. The credit facility provides for borrowings at an interest rate based either on the
prime rate or federal funds rate. No amounts have been drawn on the letter of credit. If drawings are made in the future, we may
elect to borrow such amounts from the lenders pursuant to term loans made under the credit facility.
Borrowings under the credit facilities are subject to financial covenants, negative covenants, and events of default that are
customary. The two primary financial covenants include limitations based on our leverage ratio and consolidated net worth. We
are also subject to covenants that limit subsidiary indebtedness.
Facility Agreement for Contingent Issuance of Senior Notes
During November 2021, we entered into a 20-year facility agreement with a Delaware trust in connection with the sale by the
trust of $400.0 million of pre-capitalized trust securities in a Rule 144A private placement. The trust invested the proceeds from
the sale of the trust securities in a portfolio of principal and interest strips of U.S. Treasury securities. The facility agreement
provides us the right to issue and sell to the trust, on one or more occasions, up to an aggregate principal amount outstanding at
any one time of $400.0 million of our 4.046% senior notes which would be due August 15, 2041 in exchange for U.S. Treasury
securities held by the trust. These senior notes will not be issued unless and until the issuance right is exercised. In return, we
will pay a semi-annual facility fee to the trust at a rate of 2.225% per year on the unexercised portion of the maximum amount of
senior notes that we could issue and sell to the trust and we will reimburse the trust for its expenses. We may also direct the trust
to grant the right to exercise the issuance right with respect to all or a designated amount of the senior notes to one or more
assignees (who are our consolidated subsidiaries or persons to whom we have an obligation).
The issuance right will be exercised automatically in full upon our failure to make certain payments to the trust, such as paying
the facility fee or reimbursing the trust for its expenses, if the failure to pay is not cured within 30 days, or upon certain
bankruptcy events involving the company. We are also required to exercise the issuance right in full if our consolidated
stockholders’ equity, excluding accumulated other comprehensive income, falls below $2.0 billion, subject to adjustment from
time to time in certain cases, and upon certain other events described in the facility agreement.
Prior to any involuntary exercise of the issuance right, we have the right to repurchase any or all of the 4.046% senior notes then
held by the trust in exchange for U.S. Treasury securities. We may redeem any outstanding 4.046% senior notes, in whole or in
part, prior to their maturity. Prior to February 15, 2041, the redemption price will equal the greater of par or a make-whole
redemption price. On or after February 15, 2041, any outstanding 4.046% senior notes may be redeemed at par.
178
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 9 - Employee Benefit Plans
Defined Benefit Pension and Other Postretirement Benefit (OPEB) Plans
We sponsor several defined benefit pension and OPEB plans for our employees, including non-qualified pension plans. The
U.S. qualified and non-qualified defined benefit pension plans comprise the majority of our total benefit obligation and benefit
cost. We maintain a separate defined benefit plan for eligible employees in our U.K. operation. The U.S. defined benefit
pension plans were closed to new entrants on December 31, 2013, the OPEB plan was closed to new entrants on December 31,
2012, and the U.K. plan was closed to new entrants on December 31, 2002.
Amortization Period of Actuarial Gain or Loss and Prior Service Cost or Credit
Because all participants in the U.S. and U.K. pension plans are considered inactive, we amortize the net actuarial gain or loss and
prior service credit or cost for these plans over the average remaining life expectancy of the plans. As of December 31, 2022, the
estimate of the average remaining life expectancy of the plans was approximately 24 years for the U.S. plan and 28 years for the
U.K. plan. For the OPEB plan, we amortize the net actuarial gain or loss and prior service credit or cost for this plan over the
average remaining future working lifetime for active participants in the plan. As of December 31, 2022, the estimate of the
average remaining future working lifetime was approximately 2 years for the OPEB plan.
The following table provides the changes in the benefit obligation and fair value of plan assets and the funded status of the plans.
Pension Benefits
U.S. Plans
U.K. Plan
OPEB
2022
2021
2022
2021
2022
2021
(in millions of dollars)
Change in Benefit Obligation
Benefit Obligation at Beginning of Year
Service Cost
Interest Cost
Plan Participant Contributions
Actuarial Gain (1)
Benefits and Expenses Paid
Change in Foreign Exchange Rates
Benefit Obligation at End of Year
$ 2,207.5 $ 2,277.2 $ 278.3 $ 300.0 $ 110.3 $ 120.5
—
3.0
0.1
(3.0)
7.7
67.2
—
(604.1)
—
4.2
—
(18.0)
—
3.0
0.1
(19.4)
—
5.0
—
(92.4)
9.6
65.0
—
(57.9)
(92.8)
(86.4)
(5.4)
(5.2)
(10.1)
(10.3)
—
(2.7)
$ 1,585.5 $ 2,207.5 $ 157.9 $ 278.3 $
(27.6)
—
—
—
83.9 $ 110.3
Accumulated Benefit Obligation at December 31
$ 1,585.5 $ 2,207.5 $ 158.0 $ 276.5 N/A
N/A
Change in Fair Value of Plan Assets
Fair Value of Plan Assets at Beginning of Year
Actual Return on Plan Assets
Employer Contributions
Plan Participant Contributions
Benefits and Expenses Paid
Change in Foreign Exchange Rates
Fair Value of Plan Assets at End of Year
$ 1,801.7 $ 1,710.9 $ 303.7 $ 294.1 $
(410.6)
10.0
—
(92.8)
—
18.0
—
—
(5.2)
(3.2)
$ 1,308.3 $ 1,801.7 $ 140.5 $ 303.7 $
(128.4)
—
—
(5.4)
(29.4)
167.6
9.6
—
(86.4)
—
9.0 $
0.1
9.4
0.1
(10.1)
—
8.5 $
9.3
0.1
9.8
0.1
(10.3)
—
9.0
Underfunded (Overfunded) Status
$ 277.2 $ 405.8 $
17.4 $
(25.4) $
75.4 $ 101.3
(1) The actuarial gains recognized in 2022 and 2021 for the U.S., OPEB, and U.K. plans were primarily driven by increases in
the discount rate assumption.
179
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 9 - Employee Benefit Plans - Continued
The amounts recognized in our consolidated balance sheets for our pension and OPEB plans at December 31, 2022 and 2021 are
as follows.
Pension Benefits
U.S. Plans
U.K. Plan
OPEB
2022
2021
2022
2021
2022
2021
Current Liability
Noncurrent Liability
Noncurrent Asset
Underfunded (Overfunded) Status
Unrecognized Pension and Postretirement Benefit
Costs
Net Actuarial Gain (Loss)
Prior Service Credit (Cost)
Income Tax
Total Included in Accumulated Other
Comprehensive Income (Loss)
$
$
$
8.8 $
8.4 $
(in millions of dollars)
— $
268.4
—
277.2 $
397.4
—
405.8 $
17.4
—
17.4 $
— $
—
(25.4)
(25.4) $
1.1 $
74.3
—
75.4 $
1.4
99.9
—
101.3
(517.8) $
(0.6)
(518.4)
213.5
(621.8) $
(0.6)
(622.4)
239.2
(83.7) $
(0.2)
(83.9)
19.5
(42.9) $
(0.2)
(43.1)
9.1
31.6 $
2.5
34.1
1.1
13.6
2.7
16.3
4.9
$
(304.9) $
(383.2) $
(64.4) $
(34.0) $
35.2 $
21.2
The following table provides the changes recognized in other comprehensive income for the years ended December 31, 2022 and
2021.
Pension Benefits
U.S. Plans
U.K. Plan
OPEB
2022
2021
2022
2021
2022
2021
(in millions of dollars)
$
(383.2) $
(494.6) $
(34.0) $
(54.7) $
21.2 $
19.3
16.3
87.7
21.3
124.8
0.4
(41.2)
1.3
26.3
(1.0)
19.0
—
(25.7)
—
(34.7)
—
10.4
—
(6.9)
(0.2)
(3.8)
—
2.6
(0.2)
(0.5)
$
(304.9) $
(383.2) $
(64.4) $
(34.0) $
35.2 $
21.2
Accumulated Other Comprehensive Income
(Loss) at Beginning of Year
Net Actuarial Gain (Loss)
Amortization
All Other Changes
Prior Service Credit (Cost)
Amortization
Change in Income Tax
Accumulated Other Comprehensive Income
(Loss) at End of Year
Plan Assets
The objective of our U.S. pension and OPEB plans is to maximize long-term return, within acceptable risk levels, in a manner
that is consistent with the fiduciary standards of the Employee Retirement Income Security Act (ERISA), while maintaining
sufficient liquidity to pay current benefits and expenses.
Our U.S. qualified defined benefit pension plan assets include a diversified blend of domestic, international, global, and
emerging market equity securities, fixed income securities, opportunistic credit securities, real estate investments, alternative
investments, and cash equivalents. Equity securities are comprised of funds and individual securities that are benchmarked
against the respective indices specified below. International and global equity funds may allocate a certain percentage of assets
to forward currency contracts. Fixed income securities include funds and U.S. government and agency asset-backed securities,
treasury futures contracts, corporate investment-grade bonds, private placement securities, and bonds issued by states or other
municipalities. Opportunistic credits consist of investments in funds that hold varied fixed income investments purchased at
180
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 9 - Employee Benefit Plans - Continued
depressed values with the intention to later sell those investments for a gain. Real estate investments consist primarily of funds
that hold commercial real estate investments. Alternative investments, which include private equity direct investments and
private equity funds of funds, utilize proprietary strategies that are intended to have a low correlation to the U.S. stock market.
Prohibited investments include, but are not limited to, unlisted securities, options, short sales, and investments in securities
issued by Unum Group or its affiliates. The invested asset classes, asset types, and benchmark indices for our U.S. qualified
defined benefit pension plan is as follows. We target approximately 38 percent to equity securities, 30 percent to fixed income
securities, and 32 percent to opportunistic credits, alternative, and real estate investments.
Asset Class
Asset Type
Benchmark Indices
Equity Securities
Fixed Income
Collective funds;
Individual holdings Morgan Stanley Capital International (MSCI) World Index
Collective funds;
Individual holdings Bloomberg Barclays Long Corporate Index; Custom Index
Opportunistic Credits
Collective fund
Custom Index
Real Estate
Alternative Investments
(Private Equity)
Collective fund
Fund of funds;
Direct investments
Custom Index
Custom Index
The investment strategy for our U.K. pension includes increasing the funded ratio in a risk-controlled manner where the risk
taken in the investment strategy reduces as the funded status of the plan increases. Assets for our U.K. pension plan are invested
in a portfolio of diversified growth assets as well as a portfolio of fixed income and index-linked securities. The portfolio of
growth assets consists of funds invested primarily in global equity securities, investment-grade and below-investment-grade
fixed interest securities, including emerging market securities as well as diversified alternatives. The portfolio of fixed interest
and index-linked securities are invested primarily in leveraged interest rate and inflation-linked gilt funds of varying durations
designed to broadly match the interest rate and inflation sensitivities of the plan's liabilities. At December 31, 2022, our target
allocation was approximately 50 percent to growth assets and 50 percent to fixed interest and index-linked securities. When the
funded status of the plan increases, we utilize a de-risking framework whereby the allocation to fixed interest and index-linked
securities increases and the allocation to growth assets is lowered. Simultaneously, the hedge ratio of interest rate and inflation
risk will increase with the intention of reducing funding level volatility. There are no categories of investments that are
specifically prohibited by the U.K. plan, but there are general guidelines that ensure prudent investment action is taken. Such
guidelines include the prevention of the plan from using derivatives for speculative purposes and limiting the concentration of
risk in any one type of investment.
Assets for the OPEB plan are invested in life insurance contracts issued by one of our insurance subsidiaries. The assets support
life insurance benefits payable to certain former retirees covered under the OPEB plan. The terms of these contracts are
consistent in all material respects with those the subsidiary offers to unaffiliated parties that are similarly situated. There are no
categories of investments specifically prohibited by the OPEB plan.
We believe our investment portfolios are well diversified by asset class and sector, with no undue risk concentrations in any one
category.
181
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 9 - Employee Benefit Plans - Continued
The categorization of fair value measurements by input level for the invested assets in our U.S. pension plans is shown below.
The carrying values of investment-related receivables and payables approximate fair value due to the short-term nature of the
securities and are not included in the following chart. Investments valued using net asset value (NAV) as a practical expedient
are not required to be categorized by input level, but these investments are included as follows to reconcile to total invested
assets. Certain prior year amounts were reclassified to conform to current year presentation.
December 31, 2022
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
NAV as a
Practical
Expedient
Total
(in millions of dollars)
Invested Assets
Equity Securities:
Global
$
57.4 $
— $
— $
405.7 $
463.1
Fixed Income Securities:
U.S. Government and Agencies1
Corporate
Non-U.S. Emerging Markets
Opportunistic Credits
Real Estate
Alternative Investments:
Private Equity Direct Investments
Private Equity Funds of Funds
194.0
—
—
—
—
21.7
—
—
—
—
—
—
20.5
—
—
—
21.7 $
—
—
—
—
—
—
129.6
54.0
132.3
164.2
—
—
—
— $
74.5
47.6
—
1,007.9 $
215.7
129.6
54.0
132.3
164.2
74.5
47.6
20.5
1,301.5
Cash Equivalents
Total Invested Assets
1 U.S. Government and Agencies Fixed Income Securities includes derivative assets.
271.9 $
$
182
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 9 - Employee Benefit Plans - Continued
December 31, 2021
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
NAV as a
Practical
Expedient
Total
(in millions of dollars)
Invested Assets
Equity Securities:
U.S. Large Cap
U.S. Small Cap
Global
Emerging Markets
Fixed Income Securities:
U.S. Government and Agencies1
Corporate
Opportunistic Credits
Real Estate
Alternative Investments:
Private Equity Direct Investments
Private Equity Funds of Funds
$
— $
32.8
—
—
419.3
—
—
—
—
—
31.9
— $
—
—
—
—
—
—
—
—
—
—
— $
— $
—
—
—
144.9 $
30.5
388.7
59.8
—
—
—
—
—
103.3
212.5
247.1
144.9
63.3
388.7
59.8
419.3
103.3
212.5
247.1
—
—
—
— $
80.4
50.5
—
1,317.7 $
80.4
50.5
31.9
1,801.7
Cash Equivalents
Total Invested Assets
1 U.S. Government and Agencies Fixed Income Securities includes derivative assets.
484.0 $
$
Level 1 investments consist of individual holdings that are valued based on unadjusted quoted prices from active markets for
identical securities. Level 2 investments consist of individual holdings that are valued using either directly or indirectly
observable inputs other than quoted prices from active markets.
Certain equity, opportunistic credit, fixed-income securities, and real estate investments are valued based on the NAV of the
underlying holdings as of the reporting date. We made no adjustments to the NAV for 2022 or 2021. These investments have
no unfunded commitments and no specific redemption restrictions.
Alternative investments are valued based on NAV in a period ranging from one month to one quarter in arrears. We evaluate the
need for adjustments to the NAV based on market conditions and discussions with fund managers in the period subsequent to the
valuation date and prior to issuance of the financial statements. We made no adjustments to the NAV for 2022 or 2021. The
private equity direct investments and private equity funds of funds generally cannot be redeemed by investors. Distributions of
capital from the sale of underlying fund assets may occur at any time, but are generally concentrated between five and eight
years from the formation of the fund. At December 31, 2022 and 2021, these investments had unfunded commitments of $24.5
million and $28.5 million, respectively.
183
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 9 - Employee Benefit Plans - Continued
The categorization of fair value measurements by input level for the invested assets in our U.K. pension plan is shown below.
Investments valued using NAV as a practical expedient are not required to be categorized by input level, but these investments
are included as follows to reconcile to total invested assets.
December 31, 2022
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
NAV as a
Practical
Expedient
Total
(in millions of dollars)
Invested Assets
Diversified Growth Assets
Fixed Income and Index-linked Securities
Alternative Investments
Cash Equivalents
Total Invested Assets
$
$
32.3 $
70.6
—
1.9
104.8 $
— $
—
—
—
— $
— $
—
—
—
— $
8.3 $
—
28.1
—
36.4 $
40.6
70.6
28.1
1.9
141.2
December 31, 2021
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
NAV as a
Practical
Expedient
Total
(in millions of dollars)
Invested Assets
Diversified Growth Assets
Fixed Income and Index-linked Securities
Alternative Investments
Cash Equivalents
Total Invested Assets
$
$
113.1 $
124.1
—
4.1
241.3 $
— $
—
—
—
— $
— $
—
—
—
— $
44.2 $
—
18.2
—
62.4 $
157.3
124.1
18.2
4.1
303.7
The level 1 diversified growth assets and fixed interest and index-linked securities consist of individual funds that are valued
based on unadjusted quoted prices from active markets for identical securities. Certain diversified growth assets were valued
based on the NAV of the underlying holdings as of the reporting date. Alternative investments are valued based on NAV one
quarter in arrears. We evaluate the need for adjustments to the NAV of the alternative investments based on an evaluation of
cash flows in the period subsequent to the valuation date and prior to issuance of the financial statements. We made no
adjustments to the NAV for 2022 or 2021. These investments generally cannot be redeemed by investors. These investments
had unfunded commitments at December 31, 2022 and 2021 of $17.3 million and $28.1 million, respectively.
184
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 9 - Employee Benefit Plans - Continued
The categorization of fair value measurements by input level for the assets in our OPEB plan is as follows:
December 31, 2022
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
(in millions of dollars)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Life Insurance Contracts
$
— $
— $
8.5 $
8.5
December 31, 2021
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
(in millions of dollars)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Life Insurance Contracts
$
— $
— $
9.0 $
9.0
The fair value is represented by the actuarial present value of future cash flows of the contracts.
Changes in our OPEB plan assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3)
during the years ended December 31, 2022 and 2021 are as follows:
Year Ended December 31, 2022
Beginning
of Year
Actual Return
on Plan Assets
Contributions
Net Benefits and
Expenses Paid
End of Year
(in millions of dollars)
Life Insurance Contracts
$
9.0 $
0.1 $
9.5 $
(10.1) $
8.5
Year Ended December 31, 2021
Beginning
of Year
Actual Return
on Plan Assets
Contributions
Net Benefits and
Expenses Paid
End of Year
(in millions of dollars)
Life Insurance Contracts
$
9.3 $
0.1 $
9.9 $
(10.3) $
9.0
For the years ended December 31, 2022 and 2021, the actual return on plan assets relates solely to investments still held at the
reporting date. There were no transfers into or out of Level 3 during 2022 or 2021.
185
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 9 - Employee Benefit Plans - Continued
Measurement Assumptions
We use a December 31 measurement date for each of our plans. The weighted average assumptions used in the measurement of
our benefit obligations as of December 31 and our net periodic benefit costs for the years ended December 31 are as follows:
Benefit Obligations
Discount Rate
Rate of Compensation Increase
Net Periodic Benefit Cost
Discount Rate
Expected Return on Plan Assets
Rate of Compensation Increase
Pension Benefits
U.S. Plans
U.K. Plan
OPEB
2022
2021
2022
2021
2022
2021
5.70 %
N/A
3.10 %
N/A
4.80 %
2.50 %
2.00 %
2.90 %
5.70 %
N/A
2.90 %
N/A
3.10 %
6.00 %
N/A
2.90 %
6.00 %
N/A
2.00 %
4.20 %
2.90 %
1.40 %
3.50 %
2.80 %
2.90 %
5.75 %
N/A
2.60 %
5.75 %
N/A
We set the discount rate assumption annually for each of our retirement-related benefit plans at the measurement date to
reflect the yield on a portfolio of high quality fixed income corporate debt instruments matched against projected cash flows
for future benefits.
Our long-term rate of return on plan assets assumption is selected from a range of probable return outcomes from an analysis of
the asset portfolio. Our expectations for the future investment returns of the asset categories are based on a combination of
historical market performance, evaluations of investment forecasts obtained from external consultants and economists, and
current market yields. The methodology underlying the return assumption includes 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.
Our mortality rate assumption reflects our best estimate, as of the measurement date, of the life expectancies of plan participants
in order to determine the expected length of time for benefit payments. We derive our assumptions from industry mortality
tables.
The expected return assumption for the life insurance reserve for our OPEB plan is based on full investment in fixed income
securities with an average book yield of 4.31 percent and 4.59 percent in 2022 and 2021, respectively.
The rate of compensation increase assumption for our U.K. pension plan is generally based on periodic studies of compensation
trends.
At December 31, 2022 and 2021, the annual rates of increase in the per capita cost of covered postretirement health care benefits
assumed for the next calendar year are 7.00 percent and 6.25 percent, respectively, for benefits payable to both retirees prior to
Medicare eligibility as well as Medicare eligible retirees. The rates are assumed to change gradually to 5.00 percent by 2031 for
measurement at December 31, 2022 and remain at that level thereafter. The annual rates of increase in the per capita cost of
covered postretirement health benefits do not apply to retirees whose postretirement health care benefits are provided through an
exchange.
186
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 9 - Employee Benefit Plans - Continued
Net Periodic Benefit Cost
The following table provides the components of the net periodic benefit cost (credit) for the years ended December 31.
Pension Benefits
Service Cost
Interest Cost
Expected Return on Plan Assets
Amortization of:
Net Actuarial Loss (Gain)
Prior Service Cost (Credit)
Curtailment Gain
Total Net Periodic Benefit Cost
(Credit)
U.S. Plans
2021
2020
2022
2022
U.K. Plan
2021
(in millions of dollars)
2020
OPEB
2021
2020
2022
$
7.7 $
67.2
9.6 $ 11.0 $ — $ — $ — $ — $ — $ —
4.1
65.0
(0.5)
(105.9) (100.6) (106.7)
5.0
(10.9)
4.9
(9.5)
3.0
(0.5)
3.0
(0.5)
4.2
(9.8)
73.0
16.3
—
—
21.3
—
—
18.7
0.1
—
0.4
—
—
1.3
—
—
1.1
—
0.1
(1.0) —
(0.2)
(0.2)
—
—
—
(0.2)
—
$ (14.7) $
(4.7) $
(3.9) $
(5.5) $
(4.3) $
(3.4) $
1.3 $
2.3 $
3.4
The service cost component of net periodic pension and postretirement benefit cost (credit) is included as a component of
compensation expense in our consolidated statements of income. All other components of net periodic pension and
postretirement benefit cost (credit) are included in other expenses.
Benefit Payments
The following table provides expected benefit payments, which reflect expected future service, as appropriate.
Pension Benefits
U.S. Plans
U.K. Plan
(in millions of dollars)
Gross
OPEB
Subsidy
Payments
$
84.9 $
88.2
92.1
96.5
100.6
550.6
5.4 $
5.5
5.7
5.8
6.0
32.4
10.0 $
9.4
9.0
8.5
8.1
34.0
0.1 $
0.1
0.1
—
—
0.1
Net
9.9
9.3
8.9
8.5
8.1
33.9
Year
2023
2024
2025
2026
2027
2028-2032
Funding Policy
The funding policy for our U.S. qualified defined benefit pension plan is to contribute an amount at least equal to the minimum
contributions required under ERISA and other applicable laws, but generally not greater than the maximum amount that can be
deducted for federal income tax purposes. We had no regulatory contribution requirements for our U.S. qualified defined benefit
pension plan in 2022 and made no amount of voluntary contributions during 2022. We do not expect to have regulatory
contribution requirements for our U.S. qualified defined benefit pension plan in 2023, but we reserve the right to make
voluntarily contributions during 2023. The funding policy for our U.S. non-qualified defined benefit pension plan, which is not
subject to ERISA, is to contribute the amount necessary to satisfy the liabilities of the plan as they come due to participants. We
expect to make contributions to the U.S. non-qualified defined benefit pension plan of approximately $9 million to fund the
benefit payments in 2023.
187
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 9 - Employee Benefit Plans - Continued
We had no regulatory contribution requirements for our U.K. defined benefit pension plan in 2022 and made no amount of
voluntary contributions during 2022. We do not expect to have regulatory contribution requirements for our U.K. defined
benefit pension plan in 2023, but we reserve the right to make voluntarily contributions during 2023.
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.
Defined Contribution Plans
We offer a 401(k) plan to all eligible U.S. employees under which a portion of employee contributions is matched. We match
dollar-for-dollar up to 5.0 percent of base salary and any recognized sales and performance-based incentive compensation for
employee contributions into the plan. We also make an additional non-elective contribution of 4.5 percent of earnings for all
eligible employees and made a separate transition contribution for eligible employees who met certain age and years of service
criteria as of December 31, 2013. The separate transition contributions continued through December 31, 2020, at which point
they ended. The 401(k) plan remains in compliance with ERISA guidelines and continues to qualify for a “safe harbor” from
most annual discrimination testing.
We also offer a defined contribution plan to all eligible U.K. employees and offer related employer contributions. If an
employee elects to make a minimum contribution of at least 1.0 percent of their base salary, we match with a contribution of 8.0
percent. We increase our contribution to a maximum of 12.0 percent as the employee increases their contribution from 1.0
percent to 5.0 percent. We do not increase our contribution percentage on employee contributions in excess of 5.0 percent.
During the years ended December 31, 2022, 2021, and 2020, we recognized costs of $70.9 million, $71.0 million, and $83.4
million, respectively, for our U.S. defined contribution plan. We recognized costs of $4.9 million, $4.9 million, and $5.0 million
in 2022, 2021, and 2020, respectively, for our U.K. defined contribution plan.
Note 10 - Stockholders' Equity and Earnings Per Common Share
Earnings Per Common Share
Net income per common share is determined as follows:
Numerator
Net Income
Denominator (000s)
Year Ended December 31
2022
2020
2021
(in millions of dollars, except share data)
$
1,314.2 $
824.2 $
793.0
Weighted Average Common Shares - Basic
Dilution for Assumed Exercises of Stock Options and Nonvested Stock
Awards
Weighted Average Common Shares - Assuming Dilution
200,647.2
204,232.9
203,642.0
1,462.2
202,109.4
615.0
204,847.9
113.3
203,755.3
Net Income Per Common Share
Basic
Assuming Dilution
$
$
6.55 $
6.50 $
4.04 $
4.02 $
3.89
3.89
We compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding for
the period. In computing earnings per share assuming dilution, we include potential common shares that are dilutive (those that
188
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 10 - Stockholders' Equity and Earnings Per Common Share - Continued
reduce earnings per share). We use the treasury stock method to account for the effect of outstanding stock options, nonvested
stock success units, nonvested restricted stock units, and nonvested performance share units on the computation of diluted
earnings per share. Under this method, the potential common shares from stock options, nonvested stock success units, and
nonvested restricted stock units will each have a dilutive effect, as individually measured, when the average market price of
Unum Group common stock during the period exceeds the exercise price of the stock options and the grant price of the
nonvested stock success units and nonvested restricted stock units. Potential common shares from performance based share units
will have a dilutive effect as the attainment of performance conditions is progressively achieved during the vesting period.
Potential common shares not included in the computation of diluted earnings per share because the impact would be antidilutive,
approximated 0.1 million, 1.1 million, and 1.6 million for the years ended December 31, 2022, 2021, and 2020, respectively.
See Note 11 for further discussion of our stock-based compensation plans.
Common Stock
As part of our capital deployment strategy, we may repurchase shares of Unum Group's common stock, as authorized by our
board of directors. The timing and amount of repurchase activity is based on market conditions and other considerations,
including the level of available cash, alternative uses for cash, and our stock price. In October 2021, our board of directors
authorized the repurchase of up to $250.0 million of Unum Group's outstanding common stock. The October 2021 share
repurchase program expired on December 31, 2022, at which point there was no remaining repurchase amount under the
program. During 2020 and the first nine months of 2021, there was no authorized share repurchase program.
In December 2022, our board of directors authorized the repurchase of up to $200.0 million of Unum Group's outstanding
common stock beginning on January 1, 2023. In February 2023, our board of directors authorized an increase to the share
repurchase program such that we are now authorized to repurchase up to $250.0 million of Unum Group's outstanding common
stock. This share repurchase program has an expiration date of December 31, 2023.
Common stock repurchases, which are accounted for using the cost method and classified as treasury stock until otherwise
retired, were as follows:
Shares Repurchased
Cost of Shares Repurchased1
2022
Year Ended December 31
2021
(in millions)
2020
5.7
200.1 $
$
1.9
50.0 $
—
—
1 Includes commissions of $0.1 million for the year ended December 31, 2022.
In February 2022, we entered into an accelerated share repurchase agreement with a financial counterparty to repurchase
$50.0 million of Unum Group's common stock in aggregate. As part of this transaction, we paid $50.0 million to the financial
counterparty and received an initial delivery of 1.3 million shares of our common stock, which represented approximately 75
percent of the total delivery under the agreement. We simultaneously entered into a forward contract indexed to the price of
Unum Group common stock, which subjected the transaction to a future price adjustment. Under the terms of the share
repurchase agreement, we were to receive, or be required to pay, a price adjustment based on the volume weighted average price
of Unum Group common stock during the term of the agreement, less a discount. Any price adjustment payable to us was to be
settled in shares of Unum Group common stock. Any price adjustment we would have been required to pay would have been
settled in either cash or common stock at our option. The final price adjustment settlement, along with the delivery of the
remaining shares, occurred in April 2022, resulting in the delivery to us of 0.4 million additional shares. In total, we repurchased
1.7 million shares pursuant to the February 2022 accelerated share repurchase agreement. During the year ended December 31,
2022, we repurchased 4.0 million shares in open market transactions at a cost of $150.1 million.
189
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 10 - Stockholders' Equity and Earnings Per Common Share - Continued
In November 2021, we entered into an accelerated repurchase agreement with terms similar to the previously discussed February
2022 accelerated share repurchase agreement. Pursuant to this agreement, we paid $50.0 million to a financial counterparty and
received an initial delivery of 1.4 million shares of our common stock. We simultaneously entered into a forward contract
indexed to the price of Unum Group common stock, which resulted in the delivery to us of 0.5 million additional shares also in
November 2021. In total, we repurchased 1.9 million shares pursuant to the accelerated repurchase agreement. During 2021,
there were no shares repurchased in open market transactions.
Preferred Stock
Unum Group has 25.0 million shares of preferred stock authorized with a par value of $0.10 per share. No preferred stock has
been issued to date.
Note 11 - Stock-Based Compensation
Description of Stock Plans
Under the 2022 Stock Incentive Plan (the 2022 Plan), up to 6.8 million shares of common stock are available for awards to our
employees, officers, consultants, and directors. Awards may be in the form of stock options, stock appreciation rights, restricted
stock, restricted stock units, performance share units, and other stock-based awards. Each award, under the 2022 plan is counted
as 1.00 share. The exercise price for stock options issued cannot be less than the fair value of the underlying common stock as of
the grant date. The maximum term of each stock option or stock appreciation right is ten years after the date of grant. At
December 31, 2022, approximately 6.6 million shares were available for future grants under the 2022 Plan.
Under the Stock Incentive Plan of 2017 (the 2017 Plan), which was terminated in May 2022 for the purposes of any further
grants, up to 17.0 million shares of common stock were available for awards to our employees, officers, consultants, and
directors. Awards could be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units,
performance share units, and other stock-based awards. Each full-value award under the 2017 plan, defined as any award other
than a stock option or stock appreciation right, were counted as 1.76 shares. Awards granted before the termination of the 2017
Plan remain outstanding in accordance with the plan's terms. Any shares subject to an outstanding award under the 2017 Plan
that, after March 15, 2022, is not issued because the award is forfeited, terminates, expires or lapses without being exercised (as
applicable), or is settled for cash, will become available for issuance under the 2022 Plan. Stock options had a term of eight
years after the date of grant and fully vest after three years.
We issue new shares of common stock for all of our stock plan vestings and exercises.
Stock Success Units (SSUs)
SSUs are classified as equity. As of both December 31, 2022 and 2021, there were 208 thousand shares of SSUs outstanding
with a weighted average grant date fair value of $18.78 per share. There were no issuances of SSUs during 2022 or 2021.
During 2020, we issued SSUs with a weighted average grant date fair value per share of $18.78. SSUs vest over a six year
period, beginning at the date of grant. One-third of the SSUs are eligible for accelerated vesting on a cumulative basis at the end
of each of the one-, three-, and five-year service periods that began on January 1, 2021, if certain performance goals are
achieved. Forfeitable dividends on SSUs are accrued in the form of cash. Compensation cost for SSUs subject to accelerated
vesting due to the achievement of certain performance conditions at the end of the one-, three-, and five-year service periods is
recognized over the implicit service period.
No SSUs vested or were forfeited during 2022. The total fair value of SSUs that vested during 2021 was $1.9 million. No SSUs
vested during 2020. At December 31, 2022, we had $1.7 million of unrecognized compensation cost related to SSUs that will be
recognized over a remaining weighted average period of 1.2 years.
190
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 11 - Stock-Based Compensation - Continued
Performance Share Units (PSUs)
PSUs are classified as equity. There were no new issuances of PSUs during 2022 or 2021. During 2020, we issued PSUs with a
weighted average grant date fair value per share of $23.49. Vesting for the PSUs occurred at the end of a three-year period and
was contingent upon our achievement of prospective company performance goals and our total shareholder return relative to a
board-approved peer group during the three-year period. Actual performance, including modification for relative total
shareholder return, could have resulted in the ultimate award of 40 percent to 180 percent of the initial number of PSUs issued,
with the potential for no award if company performance goals had not been achieved during the three-year period. Forfeitable
dividend equivalents on PSUs were accrued as cash.
We had no outstanding PSUs at December 31, 2022. We had 308 thousand PSUs outstanding at December 31, 2021 with a
weighted average grant date fair value of $23.58 per share. There was a decrease of 75 thousand shares granted during 2022
with a weighted average grant date fair value of $40.67 per share, which reflects the application of the performance factor to the
2019 PSU grant that was less than 100 percent. 256 thousand shares vested during 2022 with a weighted average grant date fair
value of $16.29 per share. Included in the 2022 vested amount is the application of the performance factor to the 2019 PSU
grant, which occurred during the first quarter of 2022. There were 2 thousand shares forfeited during 2022 with a weighted
average grant date fair value of $23.58 per share.
PSU shares represent aggregate initial target awards and accrued dividend equivalents and do not reflect potential increases or
decreases resulting from the application of the performance factor determined after the end of the performance periods. At
December 31, 2022, the three-year performance period for the 2020 PSU grant was completed and the related shares vested, but
the performance factor had not yet been applied. The performance factor will be applied during the first quarter of 2023, with
distribution of the stock at that time.
The total fair value of shares vested during 2022, 2021, and 2020 was $4.2 million, $6.6 million, and $6.5 million, respectively.
At December 31, 2022, we had no unrecognized compensation cost related to PSUs as there are no remaining PSUs outstanding.
The estimated compensation expense was adjusted for actual performance experience and was recognized ratably during the
service period when it became probable that the performance conditions would be satisfied. Compensation cost for PSUs subject
to accelerated vesting at the date of retirement eligibility was recognized over the implicit service period.
The fair value of PSUs is estimated on the date of initial grant using the Monte-Carlo simulation model. Key assumptions used
to value PSUs granted during 2020 are as follows:
Expected Volatility (based on our and our peer group historical daily stock prices)
Expected Life (equals the performance period)
Risk Free Interest Rate (based on U.S. Treasury yields at the date of grant)
Year Ended December 31, 2020
23 %
3 years
0.85 %
191
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 11 - Stock-Based Compensation - Continued
Cash Incentive Units (CIUs)
Activity for CIUs classified as a liability is as follows:
Outstanding at December 31, 2021
Granted
Outstanding at December 31, 2022
Units
(000s)
Weighted Average
Grant Date
Fair Value
7,223 $
8,024
15,247
1.07
1.09
1.08
During 2022 and 2021, we issued CIUs with a weighted average grant date fair value per unit of $1.09 and $1.07, respectively.
During 2020, no CIUs were issued. CIUs are denominated and settled in cash. Vesting for the CIUs occurs at the end of a three-
year period and is based upon prospective company performance measures and our total shareholder return relative to a board-
approved peer group during the three-year period. Actual performance, including modification for relative total shareholder
return, may result in the ultimate award of 0 percent to 200 percent of the initial number of CIUs issued.
CIUs in the preceding table represent aggregate initial target awards and do not reflect potential increases or decreases resulting
from the application of the performance factor determined after the end of the performance periods. No CIUs have vested as of
December 31, 2022.
At December 31, 2022, we had approximately $9.6 million of unrecognized compensation cost related to CIUs that will be
recognized over a weighted average period of one year. The estimated compensation expense is adjusted for actual performance
experience and is recognized ratably during the service period, or remaining service period, if and when it becomes probable that
the performance conditions will be satisfied. Compensation cost for CIUs subject to accelerated vesting at the date of retirement
eligibility is recognized over the implicit service period.
The fair value of CIUs is estimated at each reporting period using the Monte-Carlo simulation model. Key assumptions used to
value CIUs granted during current year are as follows:
Expected Volatility (based on our and our peer group historical daily stock prices)
Expected Life (equals the performance period)
Risk Free Interest Rate (based on U.S. Treasury yields at the date of grant)
30 %
3 years
4.26 %
50 %
3 years
0.71 %
Year Ended December 31
2021
2022
Restricted Stock Units (RSUs)
Activity for RSUs classified as equity is as follows:
Outstanding at December 31, 2021
Granted
Vested
Forfeited
Outstanding at December 31, 2022
Shares
(000s)
Weighted Average
Grant Date
Fair Value
2,016 $
1,323
(1,018)
(139)
2,182
26.63
28.21
27.51
26.19
27.20
During 2022, 2021, and 2020, we issued RSUs with a weighted average grant date fair value per share of $28.21, $27.02, and
$22.71, respectively. RSUs vest over a one to three-year service period, beginning at the date of grant, and the compensation
cost is recognized ratably during the vesting period. Forfeitable dividend equivalents on RSUs are accrued as cash.
192
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 11 - Stock-Based Compensation - Continued
Compensation cost for RSUs subject to accelerated vesting at the date of retirement eligibility is recognized over the implicit
service period.
The total fair value of shares vested during 2022, 2021, and 2020 was $28.0 million, $23.9 million, and $25.1 million,
respectively. At December 31, 2022, we had $31.9 million of unrecognized compensation cost related to RSUs that will be
recognized over a weighted average period of 0.8 years.
Cash-Settled RSUs
Activity for cash-settled RSUs classified as a liability is as follows:
Outstanding at December 31, 2021
Vested
Outstanding at December 31, 2022
Shares
(000s)
Weighted Average
Grant Date
Fair Value
46 $
(23)
23
23.31
23.31
23.31
During 2020, we issued cash-settled RSUs with a weighted average grant date fair value per share of $22.94. There were no
issuances of cash-settled RSUs during 2022 or 2021. Cash-settled RSUs vest over a one to three-year service period, beginning
at the date of grant, and the compensation cost is recognized ratably during the vesting period. Forfeitable dividends on cash-
settled RSUs are accrued in the form of cash. Compensation cost for cash-settled RSUs subject to accelerated vesting at the date
of retirement eligibility is recognized over the implicit service period. The total fair value of cash-settled RSUs that vested
during 2022 and 2021 was $0.7 million and $0.6 million, respectively. No cash-settled RSUs vested during 2020.
The amount payable per unit awarded is equal to the price per share of Unum Group's common stock at settlement of the award,
and as such, we measure the value of the award each reporting period based on the current stock price. The effects of changes in
the stock price during the service period are recognized as compensation cost over the service period. Changes in the amount of
the liability due to stock price changes after the service period are recognized as compensation cost during the period in which
the changes occur. At December 31, 2022, we had $0.2 million of unrecognized compensation cost related to cash-settled RSUs
that will be recognized over a weighted average period of 0.1 years.
Stock Options
There were no stock options granted or vested in the years 2020 through 2022. There were no options exercised in 2022, and the
intrinsic value of options exercised in both 2021 and 2020 was $0.1 million. As of December 31, 2021, we have no
unrecognized compensation cost related to stock options as there are no exercisable stock options outstanding. Stock options
vested over a one to three-year service period, beginning at the date of grant, and the compensation cost was recognized ratably
during the vesting period. Compensation cost for stock options subject to accelerated vesting at the date of retirement eligibility
was recognized over the implicit service period.
193
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 11 - Stock-Based Compensation - Continued
Expense
Compensation expense for the stock based plans, as reported in our consolidated statements of income, is as follows:
Performance Share Units
Cash Incentive Units
Restricted Stock Units and Cash-Settled Restricted Stock Units
Stock Success Units
Other
Total Compensation Expense, Before Income Tax
Total Compensation Expense, Net of Income Tax
2022
Year Ended December 31
2021
(in millions of dollars)
2020
5.7 $
12.8
32.7
0.9
0.6
52.7 $
3.3 $
3.2
25.5
2.8
0.6
35.4 $
47.3 $
31.1 $
5.6
—
23.9
0.4
0.5
30.4
26.1
$
$
$
Cash received under all share-based payment arrangements for the years ended December 31, 2022, 2021, and 2020 was $4.2
million, $3.8 million, and $4.4 million, respectively.
Note 12 - Reinsurance
Reinsurance activity related to both our premium income and changes in reserves for future benefits are as follows:
Direct Premium Income
Reinsurance Assumed
Reinsurance Ceded
Net Premium Income
Ceded Benefits and Change in Reserves for Future Benefits
$
$
$
2022
Year Ended December 31
2021
(in millions of dollars)
9,742.8 $
90.6
(352.4)
9,481.0 $
9,900.5 $
78.7
(355.8)
9,623.4 $
2020
9,621.9
94.1
(337.9)
9,378.1
1,034.6 $
862.5 $
628.8
In December 2020, Provident, The Paul Revere Life Insurance Company (Paul Revere Life), and Unum America, wholly-owned
domestic insurance subsidiaries of Unum Group and collectively referred to as "the ceding companies", each entered into
separate reinsurance agreements with Commonwealth Annuity and Life Insurance Company (Commonwealth), to reinsure on a
coinsurance basis effective as of July 1, 2020 approximately 75 percent of the Closed Block individual disability business,
primarily direct business written by the ceding companies. In March 2021, we completed the second phase of the reinsurance
transaction, pursuant to which the ceding companies and Commonwealth amended and restated their respective reinsurance
agreements to reinsure on a coinsurance and modified coinsurance basis effective as of January 1, 2021, a substantial portion of
the remaining Closed Block individual disability business that was not ceded in December 2020, primarily business previously
assumed by the ceding companies. Commonwealth has established and will maintain collateralized trust accounts for the benefit
of the ceding companies to secure its obligations under the relevant reinsurance agreement. In connection with the first phase of
the reinsurance transaction which occurred in December 2020, the ceding companies paid a total ceding commission to
Commonwealth of $437.7 million and transferred additional assets consisting primarily of fixed maturity securities and cash
totaling $6,669.8 million. In connection with the second phase of the reinsurance transaction which occurred in March 2021,
Commonwealth paid a total ceding commission to the ceding companies of $18.2 million. Also in connection with the second
phase, the ceding companies transferred additional assets consisting primarily of fixed maturity securities and cash to
Commonwealth of $767.0 million.
In December 2020, Provident Life and Casualty Insurance Company (PLC), also a wholly-owned domestic insurance subsidiary
of Unum Group, entered into an agreement with Commonwealth whereby PLC will provide a 12-year volatility cover to
194
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 12 - Reinsurance - Continued
Commonwealth for the active life cohort (ALR cohort). As part of this agreement, PLC received a payment from
Commonwealth of approximately $62 million. In March 2021, PLC and Commonwealth amended and restated this agreement
to incorporate the ALR cohort related to the additional business that was reinsured between the ceding companies and
Commonwealth as part of the second phase of the transaction. As part of the amended and restated volatility cover, PLC
received a payment from Commonwealth of approximately $18 million. At the end of the 12-year coverage period in 2032,
Commonwealth will retain the remaining incidence and claims risk on the ALR cohort of the ceded business. Under this
volatility cover, annual settlements will be made equal to the difference between the actual and estimated cash flows and reserve
changes during the year. Upon expiration of the 12-year period, a terminal settlement will be made based on the final disabled
life reserves. As a result of the volatility cover, the reinsurance agreement covering the ALR cohort does not pass risk transfer
requirements under GAAP and is accounted for under the deposit method.
As a result of the reinsurance transaction, we recognized the following items for the first phase in December 2020 and the second
phase in March 2021, respectively:
•
•
•
•
•
•
•
•
Net realized investment gains totaling $1,302.3 million and $67.6 million related to the transfer of investments.
Increase in benefits and change in reserves for future benefits of $1,284.5 million and $133.1 million resulting from the
realization of previously unrealized investment gains and losses recorded in accumulated other comprehensive income.
Transaction costs totaling $21.0 million and $6.2 million.
Reinsurance recoverable of $6,141.5 million and $990.0 million related to the policies on claim status (DLR cohort).
Cost of reinsurance, or prepaid reinsurance premium, of $815.7 million and $43.1 million related to the DLR cohort.
Deposit asset of $88.2 million and $5.0 million related to the ALR cohort.
Tax benefit of $36.5 million, in connection with the first phase.
Payable of $307.2 million related to the portfolio of invested assets associated with the business ceded on a modified
coinsurance basis, in connection with the second phase.
The cost of reinsurance is amortized over the expected run-off pattern of the ceded reserves for the DLR cohort and we
recognized $63.8 million, $79.1 million, and $2.6 million in amortization expense for 2022, 2021, and 2020, respectively. The
deposit asset is adjusted over the 12-year period of the volatility cover based on cash flows related to the ALR cohort, settlement
payments as determined above, and accretion of interest and will result in an amount equal to the expected disabled life reserve
for the ALR cohort at the expiration of the volatility cover. Both the cost of reinsurance and the deposit asset are reported in
Other Assets within our Consolidated Balance Sheets.
As of December 31, 2022, Commonwealth accounted for 59 percent of the total reinsurance recoverable and the majority of
our total cost of reinsurance. Commonwealth has an A rating by A.M. Best Company (AM Best) and has also established
collateralized trust accounts for our benefit to secure its obligations. In addition, nine other major companies, which account
for approximately 36 percent of our reinsurance recoverable, are also rated A or better by either AM Best or Standard &
Poor's Ratings Services (S&P), or are fully securitized by letters of credit or investment-grade fixed maturity securities held
in trust. Approximately 4 percent of our reinsurance recoverable is primarily related to business reinsured with other
companies also rated A- or better by AM Best or S&P, with overseas entities with equivalent ratings, or backed by letters of
credit or trust agreements, or through reinsurance arrangements wherein we retain the assets in our general account. Less
than one percent of our reinsurance recoverable is held by companies either rated below A- by AM Best or S&P, or not rated.
Note 13 - Segment Information
We have three principal operating business segments: Unum US, Unum International, and Colonial Life. Our other segments are
Closed Block and Corporate.
The Unum US segment is comprised of group disability, group life and accidental death and dismemberment, and supplemental
and voluntary lines of business. The group disability line of business includes long-term and short-term disability, medical stop-
loss, and fee-based service products. The supplemental and voluntary line of business includes voluntary benefits, individual
disability, and dental and vision products. These products are marketed through our field sales personnel who work in
conjunction with independent brokers and consultants.
195
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 13 - Segment Information - Continued
The Unum International segment is comprised of our operations in both the United Kingdom and Poland. Our Unum UK
products include insurance for group long-term disability, group life, and supplemental lines of business which include dental,
individual disability, and critical illness products. Our Unum Poland products include insurance for individual and group life
with accident and health riders. Unum International's products are sold primarily through field sales personnel and independent
brokers and consultants.
The Colonial Life segment includes insurance for accident, sickness, and disability products, which includes our dental and
vision products, life products, and cancer and critical illness products marketed to employees, on both a group and an individual
basis, at the workplace through an independent contractor agent sales force and brokers.
The Closed Block segment consists of group and individual long-term care, and other insurance products no longer actively
marketed. We discontinued offering individual long-term care in 2009 and group long-term care in 2012. Other insurance
products include individual disability, group pension, individual life and corporate-owned life insurance, reinsurance pools and
management operations, and other miscellaneous product lines. In December 2020, we entered into the first phase of a
reinsurance agreement to reinsure the majority of our Closed Block individual disability products to a third party. In March
2021, we completed the second phase of the reinsurance transaction to reinsure a portion of the remaining Closed Block
individual disability business that was not ceded in December 2020. See Note 12 for further discussion.
The Corporate segment includes investment income on corporate assets not specifically allocated to a line of business, interest
expense on corporate debt, and certain other corporate income and expenses not allocated to a line of business.
Impairment Loss on Internal-Use Software
During 2021, we recognized an impairment loss of $12.1 million for previously capitalized internal-use software that we no
longer plan to utilize. We determined that this internal-use software would no longer be developed in order to focus our efforts
on the development of software that better supports our long-term strategic goals. The impairment loss reduced the carrying
value of the internal-use software to zero and has been recorded within other expenses in the consolidated statements of income
and is included within our Corporate segment.
Costs Related to Organizational Design Update
During 2020, we realigned certain parts of our organizational structure by shifting resources to accelerate growth, fund priority
investments, and simplify and improve our business practices. In connection with this update, we incurred charges of
$23.3 million, which primarily consisted of employee severance and benefit costs as well as certain costs related to lease
terminations and the disposal of certain fixed assets. These costs were recorded within either compensation expense or other
expenses in the consolidated statements of income and were included within our Corporate segment. This update did not result
in the exit or disposal of any of our lines of business.
196
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 13 - Segment Information - Continued
Segment information is shown below. Certain prior year amounts were reclassified to conform to current year presentation.
Premium Income
Unum US
Group Disability
Group Long-term Disability
Group Short-term Disability
Group Life and Accidental Death & Dismemberment
Group Life
Accidental Death & Dismemberment
Supplemental and Voluntary
Voluntary Benefits
Individual Disability
Dental and Vision
Unum International
Unum UK
Group Long-term Disability
Group Life
Supplemental
Unum Poland
Colonial Life
Accident, Sickness, and Disability
Life
Cancer and Critical Illness
Closed Block
Long-term Care
All Other
2022
Year Ended December 31
2021
(in millions of dollars)
2020
$
1,911.7
926.3
$
1,827.8
864.0
$
1,828.5
799.2
1,669.1
173.7
1,641.9
165.1
1,640.5
163.9
840.6
461.1
275.8
846.7
459.8
272.7
875.2
456.0
255.6
6,258.3
6,078.0
6,018.9
376.9
138.2
114.0
89.7
718.8
948.9
401.1
352.0
1,702.0
697.4
246.9
944.3
401.9
112.3
112.6
90.2
717.0
953.3
384.7
352.2
1,690.2
704.3
291.5
995.8
364.9
108.5
99.8
79.6
652.8
975.1
376.4
360.5
1,712.0
666.9
327.5
994.4
Total Premium Income
$
9,623.4
$
9,481.0
$
9,378.1
197
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 13 - Segment Information - Continued
Unum US
Unum
International
Colonial
Life
Closed
Block
(in millions of dollars)
Corporate
Total
Year Ended December 31, 2022
Premium Income
Net Investment Income
Other Income
Adjusted Operating Revenue
Adjusted Operating Income (Loss)
Interest and Debt Expense
Depreciation and Amortization
Year Ended December 31, 2021
Premium Income
Net Investment Income
Other Income
Adjusted Operating Revenue
Adjusted Operating Income (Loss)
Interest and Debt Expense
Depreciation and Amortization
Year Ended December 31, 2020
Premium Income
Net Investment Income
Other Income
Adjusted Operating Revenue
Adjusted Operating Income (Loss)
Interest and Debt Expense
Depreciation and Amortization
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
6,258.3 $
676.3
196.3
7,130.9 $
718.8 $
170.1
0.9
889.8 $
1,702.0 $
152.7
1.1
1,855.8 $
944.3 $
1,070.6
58.0
2,072.9 $
— $
9,623.4
2,122.2
52.5
4.8
261.1
57.3 $ 12,006.7
970.7 $
— $
370.6 $
127.0 $
— $
22.0 $
374.6 $
— $
303.5 $
247.9 $
— $
4.7 $
(164.3) $
192.7 $
0.6 $
1,555.9
192.7
701.4
6,078.0 $
721.6
170.0
6,969.6 $
717.0 $
132.7
0.6
850.3 $
1,690.2 $
172.0
1.0
1,863.2 $
995.8 $
1,159.0
65.1
2,219.9 $
— $
9,481.0
2,213.2
27.9
6.2
242.9
34.1 $ 11,937.1
464.9 $
— $
400.9 $
105.7 $
— $
21.0 $
329.2 $
— $
275.4 $
394.7 $
— $
5.1 $
(177.9) $
185.0 $
0.7 $
1,116.6
185.0
703.1
6,018.9 $
720.3
154.9
6,894.1 $
825.4 $
— $
421.7 $
652.8 $
104.6
0.5
757.9 $
1,712.0 $
155.7
1.1
1,868.8 $
994.4 $
1,370.3
66.6
2,431.3 $
9,378.1
— $
2,360.7
9.8
1.1
224.2
10.9 $ 11,963.0
76.6 $
— $
20.1 $
335.4 $
— $
273.9 $
241.4 $
3.1 $
5.9 $
(200.8) $
185.1 $
0.7 $
1,278.0
188.2
722.3
198
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 13 - Segment Information - Continued
Deferred Acquisition Costs
Year Ended December 31, 2022
Beginning of Year
Capitalization
Amortization
Adjustment Related to Unrealized Investment Gains and
Losses
Foreign Currency
End of Year
Year Ended December 31, 2021
Beginning of Year
Capitalization
Amortization
Adjustment Related to Unrealized Investment Gains and
Losses
Foreign Currency
End of Year
Year Ended December 31, 2020
Beginning of Year
Capitalization
Amortization
Adjustment Related to Unrealized Investment Gains and
Losses
Foreign Currency
End of Year
Unum US
Unum
International
Colonial
Life
(in millions of dollars)
Total
$
$
1,096.2 $
273.1
(294.9)
15.0
—
1,089.4 $
35.4 $
12.0
(7.6)
—
(3.2)
36.6 $
1,076.3 $
271.8
(288.5)
66.7
—
1,126.3 $
2,207.9
556.9
(591.0)
81.7
(3.2)
2,252.3
$
1,168.7 $
32.0 $
1,071.9 $
2,272.6
242.7
(319.0)
12.8
(8.0)
252.6
(259.1)
3.8
—
1,096.2 $
—
(1.4)
35.4 $
10.9
—
1,076.3 $
1,223.0 $
291.5
(341.0)
(4.8)
—
1,168.7 $
26.4 $
12.1
(7.4)
—
0.9
32.0 $
1,074.6 $
272.6
(257.7)
(17.6)
—
1,071.9 $
508.1
(586.1)
14.7
(1.4)
2,207.9
2,324.0
576.2
(606.1)
(22.4)
0.9
2,272.6
$
$
$
Assets
Unum US
Unum International
Colonial Life
Closed Block
Corporate
Total Assets
December 31
2022
2021
(in millions of dollars)
$
$
16,278.7 $
3,154.9
4,448.9
34,241.2
3,311.2
61,434.9 $
18,696.3
4,086.5
4,895.9
38,287.9
4,149.0
70,115.6
Revenue is primarily derived from sources in the United States, the United Kingdom, and Poland. There are no material
revenues or assets attributable to foreign operations other than those reported in our Unum International segment.
199
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 13 - Segment Information - Continued
We report goodwill in our Unum US, Unum International, and Colonial Life segments, which are the segments expected to
benefit from the originating business combinations. At December 31, 2022 and 2021 goodwill was $347.6 million and $352.2
million, respectively, with $280.0 million attributable to Unum US in each year, $39.9 million and $44.5 million, respectively,
attributable to Unum International, and $27.7 million attributable to Colonial Life in each year.
Stockholders' equity is allocated to the operating segments on the basis of an internal allocation formula that reflects the volume
and risk components of each operating segment's business and aligns allocated equity with our target capital levels for regulatory
and rating agency purposes. We modify this formula periodically to recognize changes in the views of capital requirements.
We measure and analyze our segment performance on the basis of "adjusted operating revenue" and "adjusted operating income"
or "adjusted operating loss", which differ from total revenue and income before income tax as presented in our consolidated
statements of income due to the exclusion of investment gains and losses and the amortization of the cost of reinsurance as well
as other items specified in the reconciliations below. We believe adjusted operating revenue and adjusted operating income or
loss are better performance measures and better indicators of the revenue and profitability and underlying trends in our business.
These performance measures are in accordance with GAAP guidance for segment reporting, but they should not be viewed as a
substitute for total revenue, income before income tax, or net income.
Investment gains or losses primarily include realized investment gains or losses, expected investment credit losses, and gains or
losses on derivatives. Investment gains or losses depend on market conditions and do not necessarily relate to decisions
regarding the underlying business of our segments. Our investment focus is on investment income to support our insurance
liabilities as opposed to the generation of investment gains or losses. Although we may experience investment gains or losses
which will affect future earnings levels, a long-term focus is necessary to maintain profitability over the life of the business since
our underlying business is long-term in nature, and we need to earn the interest rates assumed in calculating our liabilities.
As previously discussed in Note 12, we have exited a substantial portion of our Closed Block individual disability product line
through the two phases of the reinsurance transaction that were executed in December 2020 and March 2021. As a result, we
exclude the amortization of the cost of reinsurance that was recognized upon the exit of the business related to the DLR cohort of
policies. We believe that the exclusion of the amortization of the cost of reinsurance provides a better view of our results from
our ongoing businesses.
We may, at other times, exclude certain other items from our discussion of financial ratios and metrics in order to enhance the
understanding and comparability of our operational performance and the underlying fundamentals but this exclusion is not an
indication that similar items may not recur and does not replace net income or net loss as a measure of our overall profitability.
See above and Notes 3, 6, 8, 12, and 15 for further discussion regarding the items specified in the reconciliation below.
200
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 13 - Segment Information - Continued
A reconciliation of total revenue to "adjusted operating revenue" and income before income tax to "adjusted operating income" is
as follows:
2022
Year Ended December 31
2021
(in millions of dollars)
12,013.8 $
11,991.0 $
2020
13,162.1
(15.7)
12,006.7 $
76.7
11,937.1 $
1,199.1
11,963.0
1,631.4 $
1,063.0 $
964.0
—
(15.7)
(15.7)
67.6
9.1
76.7
—
(63.8)
(139.3)
(79.1)
(63.8)
155.0
—
—
—
—
1,555.9 $
(218.4)
181.4
(12.1)
(67.3)
(13.9)
—
1,116.6 $
1,302.3
(103.2)
1,199.1
(1,305.5)
(2.6)
(1,308.1)
(169.0)
—
—
(12.7)
(23.3)
1,278.0
Total Revenue
Excluding:
Net Investment Gain (Loss)
Adjusted Operating Revenue
Income Before Income Tax
Excluding:
Net Investment Gains and Losses
Net Realized Investment Gain Related to Reinsurance Transaction
Net Investment Gain (Loss), Other
Total Net Investment Gain (Loss)
Items Related to Closed Block Individual Disability Reinsurance
Transaction
Change in Benefit Reserves and Transaction Costs
Amortization of the Cost of Reinsurance
Total Items Related to Closed Block Individual Disability
Reinsurance Transaction
Net Reserve Change Related to Reserve Assumption Updates
Impairment Loss on Internal-Use Software
Cost Related to Early Retirement of Debt
Impairment Loss on ROU Asset
Costs Related to Organizational Design Update
Adjusted Operating Income
$
$
$
$
201
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 14 - Commitments and Contingent Liabilities
Commitments
See Notes 2 and 3 for further discussion on certain investment commitments of the Company.
Contingent Liabilities
We are a defendant in a number of litigation matters that have arisen in the normal course of business, including the matters
discussed below. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries
and conduct investigations concerning our compliance with applicable insurance and other laws and regulations. Given the
complexity and scope of our litigation and regulatory matters, it is not possible to predict the ultimate outcome of all pending
investigations or legal proceedings or provide reasonable estimates of potential losses, except if noted in connection with specific
matters.
In some of these matters, no specified amount is sought. In others, very large or indeterminate amounts, including punitive and
treble damages, are asserted. There is a wide variation of pleading practice permitted in the United States courts with respect to
requests for monetary damages, including some courts in which no specified amount is required and others which allow the
plaintiff to state only that the amount sought is sufficient to invoke the jurisdiction of that court. Further, some jurisdictions
permit plaintiffs to allege damages well in excess of reasonably possible verdicts. Based on our extensive experience and that of
others in the industry with respect to litigating or resolving claims through settlement over an extended period of time, we
believe that the monetary damages asserted in a lawsuit or claim bear little relation to the merits of the case, or the likely
disposition value. Therefore, the specific monetary relief sought is not stated.
Unless indicated otherwise in the descriptions below, reserves have not been established for litigation and contingencies. An
estimated loss is accrued when it is both probable that a liability has been incurred and the amount of the loss can be reasonably
estimated.
Claims Handling Matters
We and our insurance subsidiaries, in the ordinary course of our business, are engaged in claim litigation where disputes arise as
a result of a denial or termination of benefits. Most typically these lawsuits are filed on behalf of a single claimant or
policyholder, and in some of these individual actions punitive damages are sought, such as claims alleging bad faith in the
handling of insurance claims. For our general claim litigation, we maintain reserves based on experience to satisfy judgments
and settlements in the normal course. We expect that the ultimate liability, if any, with respect to general claim litigation, after
consideration of the reserves maintained, will not be material to our consolidated financial condition. Nevertheless, given the
inherent unpredictability of litigation, it is possible that an adverse outcome in certain claim litigation involving punitive
damages could, from time to time, have a material adverse effect on our consolidated results of operations in a period, depending
on the results of operations for the particular period.
From time to time class action allegations are pursued where the claimant or policyholder purports to represent a larger number
of individuals who are similarly situated. Since each insurance claim is evaluated based on its own merits, there is rarely a single
act or series of actions which can properly be addressed by a class action. Nevertheless, we monitor these cases closely and
defend ourselves appropriately where these allegations are made.
Note 15 - Leases
We lease certain buildings and equipment under various noncancellable operating lease agreements. In addition, we have sub-
lease agreements on a limited number of our building lease agreements. We generally have the option to renew the majority of
our building leases and equipment leases at the end of the lease term at the fair rental value at the time of renewal.
We do not have any lease agreements or sub-lease agreements that contain variable lease payments. In addition, we do not have
lease agreements or sub-lease agreements that contain residual value guarantees or impose any financial restrictions or covenants
with the lessors.
202
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 15 - Leases - Continued
Operating lease information is as follows:
Year Ended December 31
2022
2021
(in millions of dollars)
2020
Lease Cost
Operating Lease Cost
Sublease Income
Total Lease Cost
$
$
19.6
(1.1)
18.5
Other Information
Cash Paid for Amounts Included in the Measurement of Lease Liabilities $
Weighted-Average Remaining Lease Term
Weighted-Average Discount Rate
23.1
6 years
4.32 %
$
$
$
$
$
$
35.2
(1.0)
34.2
29.9
6 years
4.45 %
48.6
(1.3)
47.3
30.8
6 years
4.37 %
As of December 31, 2022, aggregate undiscounted minimum lease payments and the reconciliation to our lease liability are as
follows (in millions of dollars):
2023
2024
2025
2026
2027
2028 and Thereafter
Total
Less Imputed Interest
Lease Liability
$
$
18.2
14.4
11.1
9.1
8.3
17.4
78.5
10.6
67.9
The right-of-use asset was $37.7 million and $49.1 million at December 31, 2022 and 2021, respectively.
During 2021 and 2020, we recognized impairment losses of $13.9 million and $12.7 million, respectively, on the ROU asset
related to one of our operating leases for office space that we do not plan to continue using to support our general operations.
The impairment losses were recorded as a result of a decrease in the fair value of the ROU asset compared to its carrying value.
The fair value of the ROU asset was determined based on a discounted cash flow model utilizing estimated market rates for sub-
lease rentals. The impairment losses for each period are recorded within other expenses in the consolidated statements of income
and are included within our Corporate segment.
203
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 16 - Statutory Financial Information
Statutory Net Income, Capital and Surplus, and Dividends
Statutory net income for U.S. life insurance companies is reported in conformity with statutory accounting principles prescribed
by the National Association of Insurance Commissioners (NAIC) and adopted by applicable domiciliary state laws. The
commissioners of the states of domicile have the right to permit other specific practices that may deviate from prescribed
practices. In connection with a financial examination of Unum America, which closed at the end of the second quarter of 2020,
the Maine Bureau of Insurance (MBOI) concluded that Unum America’s long-term care statutory reserves were deficient by
$2,100.0 million as of December 31, 2018, the financial statement date of the examination period. The amount reserves are
deficient may increase or decrease over time based on changes in assumed reinvestment rates, policyholder inventories, rate
increase activity, and the underlying growth in the locked in statutory reserve basis as well as updates to other long term actuarial
assumptions. The MBOI granted permission to Unum America on May 1, 2020, to phase in the additional statutory reserves
over seven years beginning with year-end 2020 and ending with year-end 2026. Additional information regarding the Unum
America premium deficiency reserve (PDR) is as follows:
Year Ended December 31
2022
2021
(in millions of dollars)
2020
Premium Deficiency Reserve
Gross Premium Deficiency Reserve1
Cumulative Gross Premium Deficiency Reserve Recognized
Remaining Premium Deficiency Reserve to be Recognized
$
$
2,851.0 $
1,191.0
1,660.0 $
2,977.0 $
667.0
2,310.0 $
2,290.0
229.0
2,061.0
1The gross PDR decreased by $126.0 million due primarily to premium rate increase activity and underlying growth in the
locked-in statutory reserve basis during 2022. The gross PDR increased by $687.0 million and $190.0 million during 2021 and
2020, respectively, due primarily to changes in the assumed reinvestment rate. The increase for 2020 was from the original
$2,100.0 million reserve deficiency as of December 31, 2018.
The phase in amounts for 2022, 2021, and 2020 were funded using cash flows from operations and capital contributions from
Unum Group. This strengthening is incorporated by using explicitly agreed upon margins into our existing assumptions for
annual statutory reserve adequacy testing. These actions add margin to Unum America's best estimate assumptions. Our long-
term care reserves and financial results reported under generally accepted accounting principles are not affected by the MBOI’s
examination conclusion. We plan to fund the additional statutory reserves with expected cash flows and capital contributions
from Unum Group. If the permitted practice was not granted by the MBOI to phase in these additional statutory reserves, the
impact to the risk-based capital ratio would have triggered a regulatory event. Our other traditional U.S. life insurance
subsidiaries have no prescribed or permitted statutory accounting practices that differ materially from statutory accounting
principles prescribed by the NAIC.
Unum America cedes certain blocks of business to Fairwind Insurance Company (Fairwind), which is an affiliated captive
reinsurance subsidiary (captive reinsurer) domiciled in the United States, with Unum Group as the ultimate parent. This captive
reinsurer was established for the limited purpose of reinsuring risks attributable to specified policies issued or reinsured by
Unum America.
Fairwind, which is domiciled in the state of Vermont, is required to follow GAAP in accordance with Vermont reporting
requirements for pure captive insurance companies, unless the commissioner permits the use of some other basis of accounting.
Fairwind has permission from Vermont to follow accounting practices that are generally consistent with current NAIC statutory
accounting principles for its insurance reserves and invested assets supporting reserves. All other assets and liabilities are
accounted for in accordance with GAAP, as prescribed by Vermont, which includes the full recognition of deferred tax assets
which are more likely than not to be realized. Statutory accounting principles have a stricter limitation for the recognition of
deferred tax assets. The impact of following the prescribed and permitted practices of Vermont rather than statutory accounting
principles prescribed by the NAIC resulted in higher capital and surplus for Fairwind of approximately $351 million and $360
million as of December 31, 2022 and 2021 respectively. The 2022, 2021, and 2020 results for Fairwind include the $524.0
million, $438 million, and $229 million increases to long-term care statutory reserves assumed from Unum America.
204
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 16 - Statutory Financial Information - Continued
In December 2020, prior to entering into the reinsurance transaction with Commonwealth, Provident, Paul Revere Life, and
Unum America recaptured their respective reinsurance agreements with Northwind Reinsurance Company (Northwind Re), a
wholly-owned domestic special purpose reinsurance subsidiary. See Note 12 for further discussion regarding the reinsurance
transaction with Commonwealth.
Northwind Re was established for the limited purpose of reinsuring risks attributable to specified policies issued or reinsured by
the aforementioned companies, and had no material state prescribed accounting practices that differ from statutory accounting
principles prescribed by the NAIC. As a result of the recapture of the reinsurance agreements during 2020, no insurance risk
remained in Northwind Re. In 2021, Northwind Re obtained a Certificate of Dormancy from the Vermont Department of
Financial Regulation authorizing it to exist as a dormant captive insurance company, leaving Fairwind as the only remaining
active captive reinsurer. During 2022, Northwind Re was merged with one of our non-insurance U.S. holding companies,
Northwind Holdings, with Northwind Holdings remaining as the surviving company. Subsequently during 2022, Northwind
Holdings was merged into Unum Group.
The operating results and capital and surplus of our traditional U.S. life insurance subsidiaries and our captive reinsurers,
prepared in accordance with prescribed or permitted accounting practices of the NAIC or states of domicile, are presented
separately below.
Combined Net Income (Loss)
Traditional U.S. Life Insurance Subsidiaries
Captive Reinsurers
Combined Net Gain (Loss) from Operations, After Tax
Traditional U.S. Life Insurance Subsidiaries
Captive Reinsurers
$
$
$
$
Combined Capital and Surplus
Traditional U.S. Life Insurance Subsidiaries
Captive Reinsurers
2022
Year Ended December 31
2021
(in millions of dollars)
2020
965.4 $
(432.2) $
779.5 $
(159.0) $
646.8
(201.0)
965.4 $
(428.6) $
681.1 $
(247.4) $
726.2
(149.4)
December 31
2022
2021
(in millions of dollars)
$
$
3,816.3 $
1,229.6 $
3,950.3
1,258.4
Solvency II, an European Union directive that is part of retained U.K. law pursuant to the European Union (Withdrawal) Act
2018, prescribes capital requirements and risk management standards for the European insurance industry. As derived from the
most recent annual financial statements for December 31, 2021, based on Solvency II requirements, regulatory net gain and own
funds available of our United Kingdom insurance subsidiary, Unum Limited, were £121.8 million and £631.0 million,
respectively.
Risk-based capital (RBC) standards for U.S. life insurance companies are prescribed by the NAIC. The domiciliary states of our
U.S. insurance subsidiaries have all adopted a version of the RBC model formula of the NAIC, which prescribes a system for
assessing the adequacy of statutory capital and surplus for all life and health insurers. The basis of the system is a risk-based
formula that applies prescribed factors to the various risk elements in a life and health insurer's business to report a minimum
capital requirement proportional to the amount of risk assumed by the insurer. The life and health RBC formula is designed to
measure annually (i) the risk of loss from asset defaults and asset value fluctuations, (ii) the risk of loss from adverse mortality
and morbidity experience, (iii) the risk of loss from mismatching of asset and liability cash flow due to changing interest rates,
and (iv) business risks. The formula is used as an early warning tool to identify companies that are potentially inadequately
capitalized. State insurance laws grant insurance regulators the authority to require various actions by, or take various actions
205
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
Note 16 - Statutory Financial Information - Continued
against, insurers whose total adjusted capital does not meet or exceed certain RBC levels. The total adjusted capital of each of
our U.S. insurance subsidiaries at December 31, 2022 is in excess of those RBC levels.
Restrictions under applicable state insurance laws limit the amount of dividends that can be paid to a parent company from its
insurance subsidiaries in any 12-month period without prior approval by regulatory authorities. For life insurance companies
domiciled in the U.S., that limitation generally equals, depending on the state of domicile, either ten percent of an insurer's
statutory surplus with respect to policyholders as of the preceding year end or the statutory net gain from operations, excluding
net realized capital gains and losses, of the preceding year. The payment of dividends to a parent company from a life insurance
subsidiary is generally further limited to the amount of unassigned funds.
Based on the restrictions under current law, approximately $991 million is available, without prior approval by regulatory
authorities, during 2023 for the payment of dividends to Unum Group from its traditional U.S. life insurance subsidiaries. The
ability of our captive insurer to pay dividends to Unum Group will depend on the satisfaction of applicable regulatory
requirements and on the performance of the business reinsured by Fairwind.
We also have the ability to receive dividends from our foreign subsidiaries, primarily in the U.K., for which the payment may be
subject to applicable insurance company regulations and capital guidance. Approximately £80 million is considered
distributable from Unum Limited during 2023, subject to local solvency standards and regulatory approval.
Deposits
At December 31, 2022 and 2021, our U.S. life insurance subsidiaries had on deposit with U.S. regulatory authorities securities
with a book value of $118.8 million and $117.7 million, respectively, held for the protection of policyholders.
206
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. We evaluated those controls
based on the 2013 Internal Control - Integrated Framework from the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, these officers concluded that our disclosure controls and procedures were effective as of
December 31, 2022.
There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934, as amended, during the quarter ended December 31, 2022 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Management's Annual Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The Company's internal control over
financial reporting encompasses the processes and procedures management has established to (i) maintain records that, in
reasonable detail, accurately and fairly reflect the Company's transactions and dispositions of assets; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.
generally accepted accounting principles; (iii) provide reasonable assurance that receipts and expenditures are appropriately
authorized; and (iv) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition,
any projection of the evaluation of effectiveness to future periods is subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting, based on criteria established in the 2013 Internal
Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and
concluded that, as of December 31, 2022, we maintained effective internal control over financial reporting.
Attestation Report of the Company's Registered Public Accounting Firm
Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements
included herein, audited the effectiveness of our internal control over financial reporting, as of December 31, 2022, and issued
the attestation report included as follows.
207
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Unum Group
Opinion on Internal Control Over Financial Reporting
We have audited Unum Group and Subsidiaries’ internal control over financial reporting as of December 31, 2022, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Unum Group and Subsidiaries (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated
statements of income, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2022, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) and our
report dated February 23, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s Annual
Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Chattanooga, Tennessee
February 23, 2023
208
ITEM 9B. OTHER INFORMATION
None
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable
209
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this Item with respect to directors is included under the caption "Information About the Board of
Directors" in our definitive proxy statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by
reference.
The information required by this Item with respect to our executive officers is included under the caption "Information about our
Executive Officers" contained herein in Item 1 and is incorporated herein by reference.
Our internet website address is www.unum.com. We have adopted corporate governance guidelines, a code of conduct
applicable to all of our directors, officers and employees, and charters for the audit, human capital, governance, risk and finance
and regulatory compliance committees of our board of directors in accordance with the requirements of the New York Stock
Exchange (NYSE).
The information required by this Item with respect to a code of ethics for our chief executive officer and certain senior financial
officers is included under the caption "Board and Committee Governance", sub-caption "Codes of Conduct and Ethics", in our
definitive proxy statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference.
The information required by this Item with respect to the audit committee and audit committee financial experts is included
under the caption "Board and Committee Governance", sub-caption "Committees of the Board", in our definitive proxy
statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference. In addition, information
relating to the procedures by which our shareholders may recommend nominees to our board of directors is included under the
caption "Corporate Governance", sub-caption "Process for Selecting and Nominating Directors", in our definitive proxy
statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item with respect to executive compensation and compensation committee matters is included
under the caption "Director Compensation", under the caption "Board and Committee Governance", sub-caption "Compensation
Committee Interlocks and Insider Participation" and sub-captions "The Board's Role in Risk Oversight" and "Compensation
Risk", and under the captions "Compensation Discussion and Analysis", "Compensation Committee Report", "Compensation
Tables", "Post-Employment Compensation", "CEO Pay Ratio", and "Pay Versus Performance" in our definitive proxy statement
for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference.
210
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item with respect to security ownership of certain beneficial owners and management is
included under the captions "Ownership of Company Securities", including sub-caption "Security Ownership of Certain
Shareholders", in our definitive proxy statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by
reference.
Equity Compensation Plan Information
The following table gives information as of December 31, 2022, about the common stock that may be issued under all our
existing equity compensation plans.
(a) Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
(b) Weighted average
exercise price of outstanding
options, warrants and rights
(5)
(c) Number of securities
remaining available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
3,220,368 (3)
39,463 (4)
3,259,832
N/A
N/A
N/A
8,179,702 (6)
0
8,179,702
Plan Category
Equity Compensation Plans
Approved by Shareholders (1)
Equity Compensation Plans Not
Approved by Shareholders (2)
Total
(1) The following plans were approved by our shareholders: Unum Group Stock Incentive Plan of 2007 (2007 Plan), Unum
Group 2020 Employee Stock Purchase Plan (ESPP), Unum Group Stock Incentive Plan of 2012 (2012 Plan), Unum
European Holding Company Limited Savings-Related Share Option Scheme 2016 (2016 SAYE), Stock Incentive Plan
of 2017 (2017 Plan), Unum European Holding Company Limited Savings-Related Share Option Scheme 2021 (2021
SAYE), and Unum Group Stock Incentive Plan of 2022.
(2) The following plan was not approved by our shareholders: Unum Provident Corporation Amended and Restated Non-
Employee Director Compensation Plan of 2004 (2004 NED Plan).
(3) Shares of common stock may be issued pursuant to the following outstanding awards subject to the satisfaction of
applicable service or performance conditions: 2,579,889 restricted stock units (RSUs) which includes stock success
units, 90,117 deferred share rights (including dividend equivalents accrued thereon), and 550,362 performance share
units (PSUs) assuming maximum achievement. Shares underlying the outstanding awards are issuable under the 2007
Plan, the 2012 Plan, the 2017 Plan, and the 2022 Plan.
(4) Shares of common stock may be issued pursuant to the following outstanding awards: 36,460 deferred share rights, and
3,003 deferred RSUs, including dividend equivalents accrued thereon, Shares underlying the outstanding awards are
issuable under the 2004 NED Plan in accordance with the deferral elections of non-employee directors.
(5) There are no outstanding options, warrants or rights under column (b).
(6) Includes 6,638,737 shares remaining available for future issuance under the 2022 Plan (including in respect of any
dividend equivalents accruing on outstanding awards under the other plans on or after the effective date of the 2022
Plan); 1,146,540 shares remaining available for issuance under the ESPP; 194,425 shares remaining available for future
issuance under the 2016 SAYE, and 200,000 shares remaining available for future issuance under the 2021 SAYE. Any
award outstanding under the 2012 Plan and the 2017 Plan as of the effective date of the 2022 Plan that after such date is
not issued because the award is forfeited, terminates, expires, or otherwise lapses without being exercised, or is settled
for cash, will be returned to the 2022 Plan. Each PSU, RSU or other full-value award under the 2022 Plan is counted as
1 share.
Below is a brief description of the equity compensation plans not approved by shareholders.
Unum Group Amended and Restated Non-Employee Director Compensation Plan of 2004
This plan provided for the payment of annual retainers and meeting fees as applicable to the non-employee directors who served
on our Board of Directors. Under the plan, directors made an irrevocable election each year to receive all or a portion of their
211
retainers and meeting fees in either cash or deferred share rights. A deferred share right is a right to receive one share of
common stock on the earlier of (i) the director’s separation from service as a director of the company, or (ii) another designated
date at least three years after the date of the deferral election. The number of deferred share rights granted is calculated as the
number of whole shares equal to (i) the dollar amount of the annual retainer and/or fees that the director elects to have paid in
deferred share rights, divided by (ii) the fair market value per share on the grant date. The aggregate number of shares which can
be issued under the plan is 500,000. This plan terminated in May 2010 with respect to new awards, though dividend equivalents
remain available for future issuance in respect of awards that were outstanding at that time. The plan is administered by the
Human Capital Committee. The plan includes provisions restricting the transferability of the deferred share rights, provisions for
adjustments to the number of shares available for grants, and the number of shares subject to outstanding grants in the event of
recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, or other similar corporate
transaction.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item with respect to director independence and transactions with related persons is included
under the caption "Corporate Governance", sub-caption "Director Independence", and under the caption "Board and Committee
Governance", sub-caption "Related Party Transactions and Policy", in our definitive proxy statement for the 2023 Annual
Meeting of Shareholders and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item with respect to fees paid to Ernst & Young LLP in 2022 and 2021 and our audit
committee's pre-approval policies and procedures are included under the caption "Items to Be Voted On", sub-captions
"Independent Auditor Fees" and "Policy for Pre-Approval of Audit and Non-Audit Services", in our definitive proxy statement
for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference.
212
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) List of Documents filed as part of this report:
Page
PART IV
(1) Financial Statements
The following report and consolidated financial statements of Unum Group and Subsidiaries are included in
Item 8.
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2022 and 2021
Consolidated Statements of Income for the three years ended December 31, 2022
Consolidated Statements of Comprehensive Income (Loss) for the three years ended December 31, 2022
Consolidated Statements of Stockholders' Equity for the three years ended December 31, 2022 Consolidated
Statements of Cash Flows for the three years ended December 31, 2022
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Summary of Investments - Other than Investments in Related Parties
I.
II. Condensed Financial Information of Registrant
III. Supplementary Insurance Information
IV. Reinsurance
V. Valuation and Qualifying Accounts
Schedules not referred to have been omitted as inapplicable or because they are not required by Regulation
S-X.
(3) Exhibits
Index to Exhibits
107
109
111
112
113
114
115
214
215
218
221
222
223
213
SCHEDULE I--SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
as of December 31, 2022
Unum Group and Subsidiaries
Type of Investment
Cost or
Amortized
Cost (1)
Fair Value
(in millions of dollars)
Amount
shown on the
balance sheet
Fixed Maturity Securities:
Bonds
United States Government and Government Agencies and Authorities
States, Municipalities, and Political Subdivisions
Foreign Governments
Public Utilities
Mortgage/Asset-Backed Securities
All Other Corporate Bonds
$
Redeemable Preferred Stocks
Total Fixed Maturity Securities
Mortgage Loans
Policy Loans
Other Long-term Investments
Derivatives
Perpetual Preferred Equity Securities
Private Equity Partnerships
Miscellaneous Long-term Investments
Short-term Investments
$
$
498.2
3,457.2
827.1
4,956.9
573.3
24,524.6
3.5
34,840.8
503.8
4,006.0
908.1
5,170.9
592.1
26,640.3
4.0
37,825.2
2,444.7
3,601.2
—
23.1
1,032.2
130.9
1,394.8
498.2
3,457.2
827.1
4,956.9
573.3
24,524.6
3.5
34,840.8
2,435.4
3,601.2
89.1 (2)
25.8 (3)
1,194.3 (3)
130.9
1,394.8
Total Investments
$
46,452.1
$
43,712.3
(1)
The amortized cost for fixed maturity securities and mortgage loans represents original cost reduced by repayments, write-
downs from declines in fair value, amortization of premiums, and/or accretion of discounts. The amortized cost for these
investments does not include allowance for expected credit losses.
(2)
Derivatives are carried at fair value.
(3)
The difference between amortized cost and carrying value for private equity partnerships and perpetual preferred equity
securities primarily results from changes in the partnership owner's equity and the security's market valuation since
acquisition, respectively.
214
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Unum Group (Parent Company)
BALANCE SHEETS
Assets
Fixed Maturity Securities - at fair value (amortized cost: $748.1; $826.4)
Other Long-term Investments
Short-term Investments
Investment in Subsidiaries
Deferred Income Tax
Other Assets
Total Assets
Liabilities and Stockholders' Equity
Liabilities
Short-term Debt
Long-term Debt
Pension and Postretirement Benefits
Other Liabilities
Total Liabilities
Stockholders' Equity
Common Stock, $0.10 par
Authorized: 725,000,000 shares
Issued: 308,306,490 and 307,334,853 shares
Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Retained Earnings
Treasury Stock - at cost: 110,551,977 and 104,820,670 shares
Total Stockholders' Equity
December 31
2021
2022
(in millions of dollars)
$
$
657.7 $
19.3
845.8
11,278.2
114.9
555.5
13,471.4 $
820.8
10.3
629.5
13,711.1
144.5
508.1
15,824.3
$
2.0 $
3,427.8
352.6
491.5
4,273.9
—
3,442.2
507.1
458.6
4,407.9
30.8
2,441.0
(2,756.6)
12,912.1
(3,429.8)
9,197.5
30.7
2,408.1
354.1
11,853.2
(3,229.7)
11,416.4
Total Liabilities and Stockholders' Equity
$
13,471.4 $
15,824.3
215
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Unum Group (Parent Company)
STATEMENTS OF OPERATIONS
2022
$
Cash Dividends from Subsidiaries
Non-Cash Dividends from Subsidiaries
Other Income
Total Revenue
Interest and Debt Expense
Cost Related to Early Retirement of Debt
Other Expenses
Total Expenses
Income of Parent Company Before Income Tax
Income Tax Expense (Benefit)
Income of Parent Company
Equity in Undistributed Earnings (Loss) of Subsidiaries
Year Ended December 31
2021
(in millions of dollars)
909.8 $
719.6
53.5
1,682.9
1,306.6 $
23.0
81.8
1,411.4
188.5
4.2
35.6
228.3
1,183.1
14.7
1,168.4
145.8
185.9
67.3
39.1
292.3
1,390.6
(24.1)
1,414.7
(590.5)
2020
974.6
—
51.7
1,026.3
187.1
—
51.1
238.2
788.1
(15.3)
803.4
(10.4)
Net Income
1,314.2
824.2
793.0
Other Comprehensive Income (Loss), Net of Tax
(3,110.7)
(20.1)
336.9
Comprehensive Income (Loss)
$
(1,796.5) $
804.1 $
1,129.9
216
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
Unum Group (Parent Company)
STATEMENTS OF CASH FLOWS
2022
Cash Provided by Operating Activities
$
Cash Flows from Investing Activities
Proceeds from Sales and Maturities of Fixed Maturity Securities
Proceeds from Sales and Maturities of Other Investments
Purchase of Fixed Maturity Securities
Purchase of Other Investments
Net Sales (Purchases) of Short-term Investments
Cash Distributions to Subsidiaries
Net Purchases of Property and Equipment
Cash Used by Investing Activities
Cash Flows from Financing Activities
Short-term Debt Repayment
Issuance of Long-term Debt
Long-term Debt Repayment
Cost Related to Early Retirement of Debt
Issuance of Common Stock
Repurchase of Common Stock
Dividends Paid to Stockholders
Other, Net
Cash Used by Financing Activities
Year Ended December 31
2021
(in millions of dollars)
861.0 $
1,250.2 $
192.1
7.4
(102.7)
(32.0)
(209.6)
(540.2)
(94.0)
(779.0)
—
349.2
(364.0)
(3.6)
4.0
(200.1)
(254.2)
0.7
(468.0)
245.5
20.1
(2.0)
(0.9)
(465.0)
(300.9)
(91.3)
(594.5)
—
588.1
(500.0)
(62.8)
3.4
(50.0)
(239.4)
(1.6)
(262.3)
2020
964.0
138.8
46.6
(384.7)
(22.0)
440.6
(965.5)
(81.6)
(827.8)
(400.0)
494.1
—
—
4.4
—
(231.9)
(1.4)
(134.8)
Increase in Cash
$
3.2 $
4.2 $
1.4
217
SCHEDULE III--SUPPLEMENTARY INSURANCE INFORMATION
Unum Group and Subsidiaries
Segment
Deferred
Acquisition
Costs
Reserves for
Future Policy
Contract
Benefits
Unearned
Premiums
Policy and
Contract
Benefits
(in millions of dollars)
December 31, 2022
Unum US
Unum International
Colonial Life
Closed Block
Total
December 31, 2021
Unum US
Unum International
Colonial Life
Closed Block
Total
$
$
$
$
1,089.4 $
36.6
1,126.3
—
2,252.3 $
9,129.9 $
2,074.7
2,750.2
28,375.4
42,330.2 $
1,096.2 $
35.4
1,076.3
—
2,207.9 $
10,959.4 $
2,765.5
2,730.1
31,552.5
48,007.5 $
50.5 $
130.4
35.2
136.6
352.7 $
41.5 $
131.8
36.3
137.9
347.5 $
1,245.8
165.2
181.5
247.3
1,839.8
1,262.5
171.2
210.3
263.7
1,907.7
218
SCHEDULE III--SUPPLEMENTARY INSURANCE INFORMATION (Continued)
Unum Group and Subsidiaries
Benefits and
Change in
Amortization
Reserves for
of Deferred
Future
Acquisition
Benefits2
Costs
(in millions of dollars)
Net
Investment
Income1
Premium
Income
All Other
Expenses3
Premiums
Written4
$
$
$
$
$
$
6,258.3 $
718.8
1,702.0
944.3
—
9,623.4 $
676.3 $
170.1
152.7
1,070.6
52.5
2,122.2 $
3,941.5 $
564.8
803.1
1,627.3
—
6,936.7 $
294.9 $
7.6
288.5
—
—
591.0 $
1,768.8 $
190.4
389.6
261.5
221.6
2,831.9
4,335.7
504.1
1,221.8
936.8
—
6,078.0 $
717.0
1,690.2
995.8
—
9,481.0 $
721.6 $
132.7
172.0
1,159.0
27.9
2,213.2 $
4,338.8 $
556.2
910.4
1,793.2
—
7,598.6 $
319.0 $
8.0
259.1
—
—
586.1 $
1,631.9 $
180.4
364.5
284.0
305.3
2,766.1
4,168.9
520.6
1,223.3
983.0
—
6,018.9 $
652.8
1,712.0
994.4
—
9,378.1 $
720.3 $
104.6
155.7
1,370.3
9.8
2,360.7 $
4,138.7 $
500.9
906.5
3,426.8
—
8,972.9 $
341.0 $
7.4
257.7
—
—
606.1 $
1,589.0 $
173.0
369.2
240.2
247.7
2,619.1
4,088.6
456.0
1,252.4
979.3
—
Segment
December 31, 2022
Unum US
Unum International
Colonial Life
Closed Block
Corporate
Total
December 31, 2021
Unum US
Unum International
Colonial Life
Closed Block
Corporate
Total
December 31, 2020
Unum US
Unum International
Colonial Life
Closed Block
Corporate
Total
1 Net investment income is allocated based upon segmentation. Each segment has its own specifically identified assets and
receives the investment income generated by those assets.
2 Included in benefits and change in reserves for future benefits were the following:
•
•
•
•
In 2022, a reserve decrease in the Unum US segment related to reserve assumption updates in our Unum US group
long-term disability and group life product lines, of $121.0 million and $34.0 million, respectively.
In 2021, a reserve decrease of $215.0 million in the Unum US segment related to reserve assumption updates in our
Unum US group long-term disability product line. Also in 2021, reserve increases in the Closed Block segment related
to reserve assumption updates for our long-term care, group pension, and individual disability product lines, of $2.1
million, $25.1 million, and $6.4 million, respectively.
In 2020, reserve increases in the Closed Block segment related to reserve assumption updates for our long-term care and
group pension product lines of $151.5 million and $17.5 million, respectively.
In 2021 and 2020, an increase in benefits and change in reserves for future benefits of $133.1 million and $1,284.5
million, respectively, resulting from the recognition of the adjustment related to unrealized investment gains and losses
previously recognized in accumulated other comprehensive income related to the Closed Block individual disability
reinsurance transaction.
219
SCHEDULE III--SUPPLEMENTARY INSURANCE INFORMATION (Continued)
Unum Group and Subsidiaries
3 Includes commissions, interest and debt expense, deferral of acquisition costs, compensation expense, and other expenses.
Where not directly attributable to a segment, expenses are generally allocated based on activity levels, time information, and
usage statistics. Also included in all other expenses were the following:
•
•
•
•
•
•
In 2022, 2021, and 2020 the amortization of the cost of reinsurance of $63.8 million, $79.1 million, and $2.6 million
respectively, in the Closed Block segment.
In 2021, an impairment loss of $12.1 million was recorded in our Corporate segment for previously capitalized internal-
use software that we no longer plan to utilize.
In 2021, costs related to early retirement of debt of $67.3 million in the Corporate segment.
In 2021 and 2020, transaction costs of $6.2 million and $21.0 million, respectively, related to the Closed Block
individual disability reinsurance transaction.
In 2021 and 2020, a right-of-use asset impairment of $13.9 million and $12.7 million, respectively, related to one of our
operating leases for office space that we do not plan to continue using to support general operations in the Corporate
segment.
In 2020, costs related to organizational design updates of $23.3 million in the Corporate segment.
4 Excludes life insurance.
220
SCHEDULE IV--REINSURANCE
Unum Group and Subsidiaries
Gross
Amount
Ceded to
Other
Companies
Assumed
from Other
Companies
(in millions of dollars)
Percentage
Amount
Assumed to
Net
Net Amount
Year Ended December 31, 2022
Life Insurance in Force
$ 1,057,312.2 $
35,773.9 $
931.9 $ 1,022,470.2
0.1 %
Premium Income:
Life Insurance
Accident, Health, and Other Insurance
Total
Year Ended December 31, 2021
$
$
2,711.2 $
7,189.3
9,900.5 $
155.1 $
200.7
355.8 $
6.5 $
72.2
78.7 $
2,562.6
7,060.8
9,623.4
0.3 %
1.0 %
0.8 %
Life Insurance in Force
$ 1,007,562.2 $
37,794.6 $
920.3 $ 970,687.9
0.1 %
Premium Income:
Life Insurance
Accident, Health, and Other Insurance
Total
Year Ended December 31, 2020
$
$
2,550.7 $
7,192.1
9,742.8 $
150.2 $
202.2
352.4 $
7.6 $
83.0
90.6 $
2,408.1
7,072.9
9,481.0
0.3 %
1.2 %
1.0 %
Life Insurance in Force
$ 979,755.7 $
41,550.9 $
896.4 $ 939,101.2
0.1 %
Premium Income:
Life Insurance
Accident, Health, and Other Insurance
Total
$
$
2,536.8 $
7,085.1
9,621.9 $
141.9 $
196.0
337.9 $
8.0 $
86.1
94.1 $
2,402.9
6,975.2
9,378.1
0.3 %
1.2 %
1.0 %
221
SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS
Unum Group and Subsidiaries
Description
Year Ended December 31, 2022
Balance at
Beginning
of Year1
Additions
Charged to
Costs and
Expenses
Additions
Charged to
Other
Accounts2 Deductions3
Balance at
End of Year
(in millions of dollars)
Allowance for expected credit losses (deducted from
accounts and premiums receivable)
Allowance for expected credit losses (deducted from
reinsurance recoverable)
Year Ended December 31, 2021
Allowance for expected credit losses (deducted from
accounts and premiums receivable)
Allowance for expected credit losses (deducted from
reinsurance recoverable)
Year Ended December 31, 2020
Real Estate reserve (deducted from other long-term
investments)
Allowance for expected credit losses (deducted from
accounts and premiums receivable)
Allowance for doubtful accounts (deducted from
reinsurance recoverable)
$
$
$
$
$
$
$
34.2 $
10.8 $
— $
12.5 $
32.5
2.3 $
— $
— $
0.6 $
1.7
38.8 $
18.2 $
— $
22.8 $
34.2
11.7 $
0.7 $
— $
10.1 $
2.3
0.3 $
— $
— $
0.3 $
—
23.8 $
34.2 $
0.1 $
19.3 $
38.8
1.8 $
10.1 $
— $
0.2 $
11.7
1 In 2020, ASC 326 "Financial Instruments - Credit Losses" was adopted resulting in a beginning balance adjustment of
$13.5 million to increase the Allowance for expected credit losses (deducted from accounts and premiums receivable) and a $1.8
million beginning balance adjustment to increase the Allowance for expected credit losses (deducted from reinsurance
recoverable).
2 Additions charged to other accounts are comprised of amounts related to fluctuations in the foreign currency exchange rate.
3 Deductions include amounts deemed to reduce exposure of expected losses on premium and accounts receivables and
reinsurance recoverable, probable losses on Real Estate reserve, amounts deemed uncollectible, and amounts related to
fluctuations in the foreign currency exchange rate.
Certain items not reported above include the allowance for expected credit losses on mortgage loans, the allowance for credit
losses on fixed maturity securities, and the deferred tax asset valuation allowance. See Notes 3 and 7 of the "Notes to
Consolidated Financial Statements" contained herein in Item 8 for a discussion of these items.
222
INDEX TO EXHIBITS
With regard to applicable cross-references in this report, our current, quarterly and annual reports dated on or after May 1, 2003
are filed with the Securities and Exchange Commission under File No. 1-11294 and such reports dated prior to May 1, 2003 are
filed with the Securities and Exchange Commission under File No. 1-11834, except as otherwise noted below. Our registration
statements have the file numbers noted wherever such statements are identified below.
(2.1)
(2.2)
(2.3)
(2.4)
(3.1)
(3.2)
(4.1)
(4.2)
(4.3)
(4.4)
(4.5)
(4.6)
(4.7)
(4.8)
(4.9)
(4.10)
(4.11)
Master Transaction Agreement, dated December 16, 2020, by and among Provident Life and Accident Insurance
Company, The Paul Revere Life Insurance Company, Unum Life Insurance Company of America and
Commonwealth Annuity and Life Insurance Company (incorporated by reference to Exhibit 2.1 of Unum Group’s
Form 8-K filed on December 17, 2020).
Amended and Restated Reinsurance Agreement, dated March 31, 2021, by and between Provident Life and Accident
Insurance Company and Commonwealth Annuity and Life Insurance Company (incorporated by reference to Exhibit
2.1 of Unum Group's Form 8-K filed on April 5, 2021). **
Amended and Restated Reinsurance Agreement, dated March 31, 2021, by and between The Paul Revere Life
Insurance Company and Commonwealth Annuity and Life Insurance Company (incorporated by reference to Exhibit
2.2 of Unum Group's Form 8-K filed on April 5, 2021). **
Amended and Restated Reinsurance Agreement, dated March 31, 2021, by and between Unum Life Insurance
Company of America and Commonwealth Annuity and Life Insurance Company (incorporated by reference to
Exhibit 2.3 of Unum Group's Form 8-K filed on April 5, 2021). **
Amended and Restated Certificate of Incorporation of Unum Group, effective May 24, 2018 (incorporated by
reference to Exhibit 3.1 of our Form 8-K filed on May 25, 2018).
Amended and Restated Bylaws of Unum Group, as amended effective February 22, 2022 (incorporated by reference
to Exhibit 3.2 of Unum Group’s Form 10-K for the fiscal year ended December 31, 2021).
Indenture for Senior Debt Securities dated as of March 9, 2001 (incorporated by reference to Exhibit 4.1 of our
Registration Statement on Form S-3 (Registration No. 333-100953) filed on November 1, 2002).
Second Supplemental Indenture, dated as of June 18, 2002, between Unum Group and JPMorgan Chase Bank, as
Trustee (incorporated by reference to Exhibit 4.2 of our Form 8-K filed on June 21, 2002).
Indenture for Senior Debt Securities, dated as of August 23, 2012, between Unum Group and The Bank of New
York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.2 of our Form 8-K filed on
August 23, 2012).
First Supplemental Indenture for Senior Debt Securities, between Unum Group and The Bank of New York Mellon
Trust Company, N.A. dated as of August 20, 2020 (incorporated by reference to Exhibit 4.4 to Unum Group’s
Registration Statement on Form S-3ASR (Registration No. 333-248208) filed on August 20, 2020).
Form of 5.75% Senior Note due 2042 (incorporated by reference to Exhibit 4.1 of our Form 8-K filed on August 23,
2012).
Form of 3.875% Senior Note due 2025 (incorporated by reference to Exhibit 4.1 of our Form 8-K filed on November
5, 2015).
Indenture for Subordinated Debt Securities, dated as of May 29, 2018, between Unum Group and The Bank of New
York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.2 of Unum Group’s Form 8-
K filed on May 29, 2018).
Form of 6.250% Junior Subordinated Notes due 2058 (incorporated by reference to Exhibit 4.1 of Unum Group's
Form 8-K filed on May 29, 2018).
Form of 4.000% Senior Notes due 2029 (incorporated by reference to Exhibit 4.1 of Unum Group's Form 8-K filed
on June 13, 2019).
Form of 4.500% Senior Notes due 2049 (incorporated by reference to Exhibit 4.1 of Unum Group's Form 8-K
filed on September 11, 2019).
Form of 4.125% Senior Notes due 2051 (incorporated by reference to Exhibit 4.1 of Unum Group's Form 8-K
filed on June 14, 2021).
(4.12)
Description of the Company’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
Certain instruments defining the rights of holders of long-term debt securities of our company and our subsidiaries are omitted
pursuant to Item 601(b)(4)(iii) of Regulation S-K. We hereby undertake to furnish to the Securities and Exchange
Commission, upon request, copies of any such instruments.
223
(10.1)
(10.2)
(10.3)
(10.4)
(10.5)
(10.6)
(10.7)
(10.8)
(10.9)
Agreement between Provident Companies, Inc. and certain subsidiaries and American General Corporation
and certain subsidiaries dated as of December 8, 1997 (incorporated by reference to Exhibit 10.18 of Provident
Companies Inc.'s Form 10-Q for fiscal quarter ended September 30, 1998).
Form of Change in Control Severance Agreement, effective April 25, 2011 (incorporated by reference to
Exhibit 10.3 of our Form 10-K for the fiscal year ended December 31, 2014). *
Form of Change in Control Severance Agreement, effective January 1, 2015 (incorporated by reference to
Exhibit 10.4 of our Form 10-K for the fiscal year ended December 31, 2014). *
Form of Change in Control Severance Agreement, effective August 14, 2018 (incorporated by reference to
Exhibit 10.5 of our Form 10-K for the fiscal year ended December 31, 2018). *
Unum Group Supplemental Pension Plan, as amended and restated effective January 1, 2010 (incorporated
by reference to Exhibit 10.6 of our Form 10-K for the fiscal year ended December 31, 2013). *
First Amendment to the Unum Group Supplemental Pension Plan, effective as of June 17, 2013 (incorporated
by reference to Exhibit 10.7 of our Form 10-K for the fiscal year ended December 31, 2013). *
Second Amendment to the Unum Group Supplemental Pension Plan, effective as of December 31, 2013
(incorporated by reference to Exhibit 10.8 of our Form 10-K for the fiscal year ended December 31, 2013). *
Third Amendment to the Unum Group Supplemental Pension Plan, effective as of January 1, 2013 (incorporated
by reference to Exhibit 10.8 of our Form 10-K for the fiscal year ended December 31, 2015). *
Fourth Amendment to the Unum Group Supplemental Pension Plan, effective as of January 1, 2021.
(incorporated by reference to Exhibit 10.9 of Unum Group's Form 10-K filed on February 17, 2021). *
(10.10) Administrative Reinsurance Agreement between Provident Life and Accident Insurance Company and Reassure
America Life Insurance Company dated to be effective July 1, 2000 (incorporated by reference to Exhibit 10.1 of
our Form 8-K filed on March 2, 2001).
(10.11) Unum Group Amended and Restated Non-Employee Director Compensation Plan of 2004, as amended
(incorporated by reference to Exhibit 10.19 of our Form 10-K for the fiscal year ended December 31, 2008). *
(10.12) California Settlement Agreement (incorporated by reference to Exhibit 10.1 of our Form 8-K filed on October
3, 2005).
(10.13) Amendment to Regulatory Settlement Agreement (incorporated by reference to Exhibit 10.2 of our Form 8-K
filed on October 3, 2005).
(10.14) Unum Group Stock Incentive Plan of 2007, as amended (incorporated by reference to Exhibit 10.26 of our Form
10-K for the fiscal year ended December 31, 2008). *
(10.15) Severance Pay Plan for Executive Vice Presidents (EVPs) (incorporated by reference to Exhibit 10.15 of
Unum Group’s Form 10-K for the fiscal year ended December 31, 2019). *
(10.16) Unum Group Stock Incentive Plan of 2012 (incorporated by reference to Appendix A of our Definitive
Proxy Statement on Schedule 14A filed on April 12, 2012). *
(10.17) Unum Group Non-Qualified Defined Contribution Retirement Plan, effective January 1, 2014 (incorporated
by reference to Exhibit 10.31 of our Form 10-K for the fiscal year ended December 31, 2013). *
(10.18) First Amendment to Unum Group Non-Qualified Defined Contribution Retirement Plan, effective as of January
1, 2019. (incorporated by reference to exhibit 10.19 of Unum Group's Form 10-K filed on February 17, 2021). *
(10.19) Second Amendment to Unum Group Non-Qualified Defined Contribution Retirement Plan, effective as of January
1, 2020 (incorporated by reference to Exhibit 10.20 to Unum Group's Form 10-K filed on February 17, 2021). *
(10.20) Second Amended and Restated Credit Agreement, dated as of April 15, 2022, among Unum Group, Unum Life
Insurance Company of America, Provident Life and Accident Insurance Company, and Colonial Life & Accident
Insurance Company, as Borrowers, the Lenders named therein, and Wells Fargo Bank, National Association, as
Administrative Agent, L/C Agent, Fronting Bank and Swingline Lender (incorporated by reference to Exhibit
10.1 of Unum Group's Form 8-K filed on April 21, 2022).
(10.21) Letter Agreement with Richard P. McKenney, dated January 30, 2015 (incorporated by reference to Exhibit 10.1 of
our Form 8-K filed on February 3, 2015). *
224
(10.22) Severance Agreement between Unum Group and Richard P. McKenney, dated effective as of April 1,
2015 (incorporated by reference to Exhibit 10.2 of our Form 8-K filed on February 3, 2015). *
(10.23) Amended and Restated Aircraft Time-Sharing Agreement between Unum Group and Richard P. McKenney, dated
as of August 9, 2019. (incorporated by reference to Exhibit 10.1 of our Form 10-Q filed on October 30, 2019).
(10.24) Unum Group Stock Incentive Plan of 2017 (incorporated by reference to Exhibit A of Unum Group's
definitive proxy statement on Schedule 14A filed on April 13, 2017). *
(10.25) Form of Restricted Stock Unit Agreement with Non-Employee Director for awards under the Unum Group
Stock Incentive Plan of 2017 (incorporated by reference to Exhibit 10.2 of Unum Group's Form 8-K filed on
May 25, 2017). *
(10.26) Form of Restricted Stock Unit Agreement with Employee in U.S. for awards in 2020 under the Unum Group
Stock Incentive Plan of 2017 (incorporated by reference to Exhibit 10.37 of Unum Group’s Form 10-K for the
fiscal year ended December 31, 2019). *
(10.27) Form of Cash-Settled Restricted Stock Unit Agreement with Employee in U.S. for awards in 2020 under the Unum
Group Stock Incentive Plan of 2017 (incorporated by reference to Exhibit 10.38 of Unum Group’s Form 10-K for
the fiscal year ended December 31, 2019). *
(10.28) Form of Restricted Stock Unit Agreement with Employee in U.K. for awards in 2020 under the Unum Group
Stock Incentive Plan of 2017 (incorporated by reference to Exhibit 10.39 of Unum Group’s Form 10-K for the
fiscal year ended December 31, 2019). *
(10.29) Form of Performance Share Unit Agreement with Employee in U.S. for awards in 2020 under the Unum Group
Stock Incentive Plan of 2017 (incorporated by reference to Exhibit 10.1 of Unum Group’s Form 10-Q filed on
May 5, 2020). *
(10.30) Form of Performance Share Unit Agreement with Employee in U.K. for awards in 2020 under the Unum Group
Stock Incentive Plan of 2017 (incorporated by reference to Exhibit 10.2 of Unum Group’s Form 10-Q filed on
May 5, 2020). *
(10.31) Annual Incentive Plan of Unum Group, amended and restated effective January 1, 2023. *
(10.32) Unum Group 2020 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 of Unum
Group’s Form 8-K filed on June 2, 2020). *
(10.33) Form of Success Incentive Plan Cash Success Unit and Stock Success Unit Agreement with Employee in
U.S. (incorporated by reference to Exhibit 10.1 of Unum Group's Form 8-K filed on August 26, 2020). *
(10.34) Form of Success Incentive Plan Cash Success Unit and Stock Success Unit Agreement with Employee in
U.K. (incorporated by reference to Exhibit 10.2 of Unum Group's Form 8-K filed on August 26, 2020). *
(10.35) Form of Restricted Stock Unit Agreement with Executive in U.S. for awards in 2021 under the Unum Group
Stock Incentive Plan of 2017 (incorporated by reference to Exhibit 10.44 of Unum Group's Form 10-K for the
fiscal year ended December 31, 2020). *
(10.36) Form of Restricted Stock Unit Agreement with Executive in U.K. for awards in 2021 under the Unum Group
Stock Incentive Plan of 2017 (incorporated by reference to Exhibit 10.45 of Unum Group's Form 10-K for the
fiscal year ended December 31, 2020). *
(10.37) Form of Cash Incentive Unit Agreement (for employee in the U.S.) (incorporated by reference to Exhibit 10.1
of Unum Group's Form 8-K filed on March 2, 2021). *
(10.38) Form of Cash Incentive Unit Agreement (for employee in the U.K.) (incorporated by reference to Exhibit 10.2
of Unum Group's Form 8-K filed on March 2, 2021). *
(10.39) Form of Restricted Stock Unit Agreement with Executive in U.S. for awards in 2022 (incorporated by reference
to Exhibit 10.44 of Unum Group’s Form 10-K for the fiscal year ended December 31, 2021). *
(10.40) Form of Restricted Stock Unit Agreement with Executive in U.K. for awards in 2022 (incorporated by reference
to Exhibit 10.45 of Unum Group’s Form 10-K for the fiscal year ended December 31, 2021). *
(10.41) Form of Cash Incentive Unit Agreement (for employee in the U.S.) for awards in 2022 (incorporated by reference
to Exhibit 10.46 of Unum Group’s Form 10-K for the fiscal year ended December 31, 2021). *
(10.42) Form of Cash Incentive Unit Agreement (for employee in the U.K.) for awards in 2022 (incorporated by reference
to Exhibit 10.47 of Unum Group’s Form 10-K for the fiscal year ended December 31, 2021). *
225
(10.43) Unum Group 2022 Stock Incentive Plan (incorporated by reference to Exhibit 99.1 of Unum Group’s
Registration Statement on Form S-8 (Registration No. 333-265246) filed on May 26, 2022). *
(10.44) Form of Restricted Stock Unit Agreement with Non-Employee Director for awards under the Unum Group
2022 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of Unum Group's Form 10-Q filed on
August 3, 2022). *
(10.45) Form of Restricted Stock Unit Agreement with Executive in U.S. for awards in 2023. *
(10.46) Form of Restricted Stock Unit Agreement with Executive in U.K. for awards in 2023. *
(10.47) Form of Cash Incentive Unit Agreement (for employee in the U.S.) for awards in 2023. *
(10.48) Form of Cash Incentive Unit Agreement (for employee in the U.K.) for awards in 2023. *
(21)
(23)
(24)
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney.
(31.1)
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2)
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32.1)
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(32.2) Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(101)
The following financial statements from Unum Group's Annual Report on Form 10-K for the year ended
December 31, 2022, filed on February 23, 2023, formatted in XBRL: (i) Consolidated Balance Sheets, (ii)
Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv)
Consolidated Statements of Stockholders' Equity, (v) Consolidated Statements of Cash Flows, (vi) the Notes to
Consolidated Financial Statements, (vii) Financial Statement Schedules.
(104)
Cover Page Interactive Data File (embedded within the Inline XBRL document).
___________
*
**
Management contract or compensatory plan required to be filed as an exhibit to this form pursuant to Item 15(c) of
Form 10-K.
Certain confidential information contained in this exhibit has been omitted because it (i) is not material and (ii)
would likely cause competitive harm to Unum Group or its subsidiaries if it were to be publicly disclosed.
226
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Unum Group
(Registrant)
By:
/s/ Richard P. McKenney
Richard P. McKenney
President and Chief Executive Officer
Date:
February 23, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Richard P. McKenney
Richard P. McKenney
President and Chief Executive Officer
and a Director (principal executive officer)
February 23, 2023
/s/ Steven A. Zabel
Steven A. Zabel
/s/ Walter L. Rice, Jr.
Walter L. Rice, Jr.
Executive Vice President, Chief Financial Officer
February 23, 2023
(principal financial officer)
Senior Vice President, Chief Accounting Officer
February 23, 2023
(principal accounting officer)
227
Name
*
Theodore H. Bunting, Jr.
Susan L. Cross
Susan D. DeVore
*
*
*
Joseph J. Echevarria
Cynthia L. Egan
Kevin T. Kabat
Timothy F. Keaney
Gale V. King
Gloria C. Larson
*
*
*
*
*
*
Ronald P. O'Hanley
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Title
Date
February 23, 2023
February 23, 2023
February 23, 2023
February 23, 2023
February 23, 2023
February 23, 2023
February 23, 2023
February 23, 2023
February 23, 2023
February 23, 2023
*
Director
February 23, 2023
Francis J. Shammo
* By: /s/ J. Paul Jullienne
J. Paul Jullienne
Attorney-in-Fact
February 23, 2023
228
EXHIBIT 31.1
CERTIFICATION
I, Richard P. McKenney, certify that:
1. I have reviewed this annual report on Form 10-K of Unum Group;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 23, 2023
/s/ Richard P. McKenney
Richard P. McKenney
President and Chief Executive Officer
A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to
Unum Group and will be retained by Unum Group and furnished to the Securities and Exchange Commission or its staff upon
request.
EXHIBIT 31.2
CERTIFICATION
I, Steven A. Zabel, certify that:
1. I have reviewed this annual report on Form 10-K of Unum Group;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 23, 2023
/s/ Steven A. Zabel
Steven A. Zabel
Executive Vice President, Chief Financial Officer
A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to
Unum Group and will be retained by Unum Group and furnished to the Securities and Exchange Commission or its staff upon
request.
EXHIBIT 32.1
STATEMENT OF CHIEF EXECUTIVE OFFICER
OF UNUM GROUP
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
§ 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Unum Group (the Company) on Form 10-K for the period ended December 31, 2022
as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned, Richard P. McKenney,
President and Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of
the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 23, 2023
/s/ Richard P. McKenney
Richard P. McKenney
President and Chief Executive Officer
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to
Unum Group and will be retained by Unum Group and furnished to the Securities and Exchange Commission or its staff upon
request.
EXHIBIT 32.2
STATEMENT OF CHIEF FINANCIAL OFFICER
OF UNUM GROUP
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
§ 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Unum Group (the Company) on Form 10-K for the period ended December 31, 2022
as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned, Steven A. Zabel,
Executive Vice President and Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 23, 2023
/s/ Steven A. Zabel
Steven A. Zabel
Executive Vice President, Chief Financial Officer
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to
Unum Group and will be retained by Unum Group and furnished to the Securities and Exchange Commission or its staff upon
request.
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Corporate Directory (as of April 1, 2023)
BOARD OF DIRECTORS
Theodore H. Bunting, Jr.
Retired Group President,
Utility Operations
Entergy Corporation
Kevin T. Kabat
Chairman of the Board of Unum Group
Retired Chief Executive Officer,
Fifth Third Bancorp
Ronald P. O’Hanley
Chairman and President and
Chief Executive Officer,
State Street Corporation
Susan L. Cross
Former Executive Vice President
and Global Chief Actuary,
XL Group Ltd
Timothy F. Keaney
Former Vice Chairman,
The Bank of New York Mellon
Corporation
Francis J. Shammo
Former Chief Financial Officer,
Verizon Communications, Inc.
Susan D. DeVore
Former Chief Executive Officer,
Premier, Inc.
Joseph J. Echevarria
Chief Executive Officer,
University of Miami
Cynthia L. Egan
Retired President,
Retirement Plan Services
T. Rowe Price Group, Inc.
Gale V. King
Former Executive Vice President and Chief
Administrative Officer,
Nationwide Mutual Insurance Company
Gloria C. Larson
Retired President,
Bentley University
Richard P. McKenney
President and Chief Executive Officer,
Unum Group
EXECUTIVE OFFICERS
Richard P. McKenney
President and Chief
Executive Officer
Steven A. Zabel
Executive Vice President,
Chief Financial Officer
Michael Q. Simonds
Executive Vice President,
Chief Operating Officer
Elizabeth C. Ahmed
Executive Vice President,
People and Communications
Timothy G. Arnold
Executive Vice President, Voluntary
Benefits and President, Colonial Life
Christopher W. Pyne
Executive Vice President,
Group Benefits
Mark P. Till
Executive Vice President
and Chief Executive Officer,
Unum International
Puneet Bhasin
Executive Vice President,
Chief Information and Digital Officer
Lisa G. Iglesias
Executive Vice President,
General Counsel
Martha D. Leiper
Executive Vice President,
Chief Investment Officer
2022 Form 10-K
Our Form 10-K for the fiscal year ended December 31, 2022 is included in this Annual Report in its entirety with the
exception of certain exhibits. All of the exhibits may be obtained by accessing our filings with the U.S. Securities
and Exchange Commission, which are available on our investor relations website under the “SEC Filings” heading at
www.investors.unum.com. In addition, shareholders may request a free copy of any exhibit by contacting the Office
of the Corporate Secretary as referenced above.
Shareholder Information
PRIMARY PHYSICAL
OFFICES
1 Fountain Square
Chattanooga, TN 37402
(423) 294-1011
2211 Congress Street
Portland, ME 04122
(207) 575-2211
1200 Colonial Life Blvd.
Columbia, SC 29210
(803) 798-7000
Milton Court
Dorking, Surrey RH4 3LZ
England
011 44 1306 887766
8485 Goodwood Blvd.
Baton Rouge, LA 70806
(225) 926-2888
Ubezpieczeń i Reasekuracji Spółka
Akcyjna, al. Jana Pawła II17, 00-854
Warsaw, Poland
+48 22 329 30 00
PRINCIPAL
SUBSIDIARIES
Provident Life and Accident
Insurance Company
Chattanooga, Tennessee
Unum Life Insurance
Company of America
Portland, Maine
Colonial Life & Accident
Insurance Company
Columbia, South Carolina
Unum Limited
Dorking, England
The Paul Revere Life
Insurance Company
Worcester, Massachusetts
Starmount Life Insurance
Company
Baton Rouge, Louisiana
Unum Zycie TUiR S.A.
Warsaw, Poland
CONTACT
INFORMATION
Investor Relations
Matt Royal
Senior Vice President,
Investor Relations
1 Fountain Square
Chattanooga, TN 37402
(423) 294-8996
Office of the Corporate
Secretary
J. Paul Jullienne
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.
Stock Performance
The accompanying graph shows a five-year comparison of the cumulative total returns on our common stock, the S&P MidCap 400 Index (“S&P 400”), and
the S&P 500 Life & Health Insurance Sub Industry Index (the “S&P Life and Health Index”), assuming a hypothetical $100 investment in our common stock
and in each index on December 31, 2017, including the reinvestment of all dividends. Past performance is not an indication of future results.
Comparison of Five-Year Cumulative Return
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UNUM GROUP
1 Fountain Square
Chattanooga, TN 37402
unum.com