Unum 2007 Annual Report Download - page 23

Download and view the complete annual report

Please find page 23 of the 2007 Unum annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 148

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148

Unum 2007 Annual Report 21
new accounts increased over the prior year, although the average new case size was smaller than expected. We are focused on maintaining
profitable and sustainable sales growth for this segment. During the latter part of 2007, we introduced a new hospital confinement indemnity
insurance plan that gives businesses the opportunity to offer their employees a solution to help fill coverage gaps in their major medical plan
and help protect employees against increasing out-of-pocket expenses. We also introduced a group limited benefit plan that provides
businesses a product offering for their employees who do not have major medical coverage. After completion of brand research and
development in the fourth quarter of 2007, we introduced the new Colonial Life brand in January 2008. The new brand includes an updated
logo and tag line and is supported by a national advertising campaign.
Capital Management Strategy
In keeping with our capital planning objectives for 2007, and as a result of the build-up of excess capital from improved operating trends
and in anticipation of our closed block of individual disability reserves securitization transaction, we formalized our capital management
goals and objectives during the latter part of 2007. Our first priority is to maintain sufficient financial flexibility to support our operations
over various economic cycles and to respond to opportunities in the marketplace while positioning our Company for improvements in
its credit ratings. We have set in place several financial targets which will guide our capital management decisions including:
 •Maintainariskbasedcapital(RBC)ratioof300percentorgreaterforourtraditionalU.S.insurancesubsidiaries.Thisistobemeasured
on a weighted average basis using the National Association of Insurance Commissioners (NAIC) Company Action Level formula.
 •Maintainleverageatapproximately25percent.Leveragewillbemeasuredasdebttototalcapital,whichwedeneasdebtplus
stockholders’ equity, excluding the net unrealized gain or loss on securities and the net gain or loss on cash flow hedges. This target
level excludes the non-recourse debt and associated capital of Tailwind Holdings, LLC (Tailwind Holdings) and Northwind Holdings,
LLC (Northwind Holdings).
 •Maintainexcesscapitalatourholdingcompaniessufcienttocoveroneyearofxedcharges(measuredasinterestexpenseplus
common stock dividends) plus a capital fund which will vary with business and economic conditions.
 •Maintainacommonstockdividendyieldthatisnearthemedianofourpeercompanies.
We consider any capital above that needed to achieve and maintain these metrics to be excess capital available to fund share
repurchases, business growth, or acquisitions. Our goal in allocating excess capital is to maximize risk-adjusted shareholder returns over
a three to five year time period, with share repurchase used as the benchmark for evaluating uses for excess capital.
Capital transactions during 2007 included the following:
 •InFebruary,wepurchasedandretired$150.0millionofouradjustableconversion-rateequitysecurityunits.
 •OnOctober31,2007,weannouncedthecompletionofasecuritizationofourclosedblockofindividualdisabilityreservesthrough
the issuance of $800.0 million floating rate, insured, senior, secured notes by our wholly-owned subsidiary Northwind Holdings. The
transaction also included the intercompany reinsurance of $11.1 billion of statutory reserves, representing approximately 95 percent
of our Individual Disability — Closed Block segment, to Northwind Reinsurance Company (Northwind Re), a newly formed special
purpose financial captive insurance company domiciled in Vermont and owned by Northwind Holdings. With the risk transfer to
Northwind Re, our traditional U.S. insurance subsidiaries were able to release excess statutory capital previously supporting this
reinsured closed block business. The excess capital was transferred to Unum Group from the ceding companies through extraordinary
dividends. This capital structure allows us to continue to fully support the risk profile of this closed block of business while we
redeploy excess capital to other uses.
 •DuringDecember,weclosedourOctober31,2007,announcedtenderofferandsuccessfullyretired$400.0millionofoutstanding
debt. We also called and retired all $150.0 million principal amount of our outstanding 7.25% notes scheduled to mature in 2032.
 •Alsoduring2007,wemadeprincipalpaymentsof$17.5milliononourseniorsecurednon-recoursevariableratenotesissuedby
Tailwind Holdings and purchased and retired $52.0 million aggregate principal amount of other outstanding debt.
 •DuringDecember,weestablisheda$400.0millionunsecuredrevolvingcreditfacilitytoprovideadditionalliquidityandnancial
flexibility for our Company. We intend to use any drawn borrowings from the facility for general corporate purposes. Any actions
that we may institute will be consistent with our capital management strategy.