Unum 2007 Annual Report Download - page 80

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
78 Unum 2007 Annual Report
Restrictions under applicable state insurance laws limit the amount of ordinary dividends that can be paid to a parent company from
its insurance subsidiaries in any 12-month period without prior approval by regulatory authorities. For life insurance companies domiciled
in the United States, that limitation generally equals, depending on the state of domicile, either ten percent of an insurer’s statutory surplus
with respect to policyholders as of the preceding year end or the statutory net gain from operations, excluding realized investment gains
and losses, of the preceding year.
The payment of ordinary dividends to a parent company from its insurance subsidiaries is generally further limited to the amount of
statutory surplus as it relates to policyholders. Based on the restrictions under current law, during 2008, $626.5 million is available for the
payment of ordinary dividends to Unum Group from its traditional U.S. insurance subsidiaries, excluding Northwind Re and Tailwind Re.
Unum Group and/or certain of its finance subsidiaries may also receive dividends from its United Kingdom-based affiliate, Unum
Limited, subject to applicable insurance company regulations and capital guidance in the United Kingdom. During 2006, the FSA completed
its review of Unum Limited’s capitalization and determined that Unum Limited’s current capitalization is in excess of the amount considered
to be sufficient capitalization. Approximately £202.1 million is available for the payment of dividends from Unum Limited during 2008,
subject to regulatory approval.
The amount available during 2007 for the payment of ordinary dividends from Unum Group’s traditional U.S. insurance subsidiaries was
$506.2 million, of which $262.7 million was declared and paid. The traditional U.S. insurance subsidiaries also declared extraordinary dividends
of $1,374.2 million in conjunction with the Northwind Re transaction, $1,346.0 million of which were paid in 2007 and $28.2 million in
January 2008. The amount available during 2007 from Unum Limited was £102.2 million, of which £100.3 million was declared and paid.
Northwind Holdings’ and Tailwind Holdings’ ability to meet their debt payment obligations will be dependent upon the receipt
of dividends from Northwind Re and Tailwind Re, respectively. The ability of Northwind Re and Tailwind Re to pay dividends to their
respective parent companies will depend on their satisfaction of applicable regulatory requirements and on the performance of the
reinsured business. During 2007, Northwind Re received regulatory approval from the insurance department of its state of domicile to
pay a dividend of $37.0 million to Northwind Holdings, and Tailwind Re received regulatory approval from the insurance department of
its state of domicile to pay dividends of $35.0 million to Tailwind Holdings.
The payment of dividends to the parent company from our subsidiaries also requires the approval of the individual subsidiary’s board
of directors.
The ability of Unum Group and certain of its intermediate holding company subsidiaries and/or finance subsidiaries to continue to
receive dividends from their insurance subsidiaries without regulatory approval generally depends on the level of earnings of those insurance
subsidiaries as calculated under law. In addition to regulatory restrictions, the amount of dividends that may be paid by insurance subsidiaries
will depend on additional factors, such as RBC ratios, funding growth objectives at an affiliate level, and maintaining appropriate capital
adequacy ratios to support desired ratings. Insurance regulatory restrictions do not limit the amount of dividends available for distribution
from non-insurance subsidiaries except where the non-insurance subsidiaries are held directly or indirectly by an insurance subsidiary and
only indirectly by Unum Group. Unum Group’s RBC ratio for its traditional U.S. insurance subsidiaries, calculated on a weighted average
basis using the NAIC Company Action Level formula, was approximately 344 percent at the end of 2007, with the individual RBC ratios for
Unum Group’s principal traditional U.S. insurance subsidiaries all in excess of our long-term target ratio of 300 percent. The individual RBC
ratios for Northwind Re and Tailwind Re, calculated using the NAIC Company Action Level formula, were each slightly above the target
level of 200 percent which was established for these special purpose financial captive insurance companies. The individual RBC ratio for
each of our insurance subsidiaries is above the range that would require state regulatory action.