Unum 2007 Annual Report Download - page 9

Download and view the complete annual report

Please find page 9 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

7 7
Bob Greving,
Chief Financial Officer and Chief Actuary
“ Not only are we a stronger company that is better positioned
to capitalize on the opportunities in front of us, but also we have
reduced our overall exposure to a downturn in the economy.”
Financial Strength for the Future
A Conversation with Chief Financial Officer Bob Greving
Q: Unum’s results exceeded Wall Street estimates in 2007, and
the company is stronger than perhaps at any other time in its
history. How does this financial strength translate to prepared-
ness for the future?
A: I believe Unum is well-positioned financially in two very significant
ways. First, we spent the last five years improving our balance sheet
and financial flexibility through a number of initiatives, the most
recent of which was a successful securitization of our closed block
of individual disability business. As a result of these actions, we
have a lower credit risk profile, well-managed investments, stronger
capital and liquidity positions, and a more comprehensive risk
management platform.
At the same time, we restructured our operations to better position
our businesses through all stages of the economic cycle. We focused
on our areas of strength, exercised more discipline in pricing and
underwriting, improved our claims management performance and
enhanced our operating effectiveness throughout the organization.
Today, we have a more diversified earnings base, more sources of
premium growth and more predictable results.
Not only are we a stronger company that is better positioned to
capitalize on the opportunities in front of us, but also we have
reduced our overall exposure to a downturn in the economy.
Q: Unum’s investments have performed well, even in an uncertain
economy. What is the company’s general investment strategy?
A: Over the past few years, we have taken a conservative approach
to managing our investment portfolio, and this approach has served
us well. Our results have been very solid, particularly given the
uncertain economic environment. In fact, we have no subprime
mortgages in our portfolio and very limited exposure to the asset
classes that are troubling many financial institutions today.
Our goal is to minimize risk for our policyholders who count on
our financial security, as well as for our investors. Each investment
undergoes a fundamental analysis, and, in particular, we focus on
quantifying and limiting interest rate risk. Going forward, we will
continue to take this same approach toward delivering consistent,
quality investment income in a capital-efficient manner. While I expect
financial market conditions to remain volatile for the foreseeable
future, our investment portfolio is well-positioned for that kind
of environment.
Q: What steps has Unum taken to integrate risk management
into its business?
A: Naturally, our awareness of the need for risk management has
been heightened in recent months, though it has been an important
area of focus for us for quite some time. If there is one thing that
is clear from the subprime mortgage crisis, it’s that all companies
should not only embed risk management practices into their busi-
nesses, but they should ensure that these practices are followed.
At Unum, we have a governance structure for risk management
that allows for oversight at both the enterprise and business unit
levels and is embedded in our planning process down to the func-
tional level. The areas we are most focused on include credit and
interest rate risk, business diversification and financial flexibility,
and we have taken a number of steps in these areas to better
position Unum’s risk profile.
Q: For the first time in several years, Unum is generating excess
capital. What is the company’s strategy for managing this capital?
A. In 2007, we formalized a capital management strategy that
has three threshold targets: maintain a risk-based capital ratio of
300 percent; keep our leverage ratio below 25 percent; and ensure
that there is enough cash at the holding company to cover one year
of fixed costs. For 2008, we expect to maintain flexibility within
these metrics, given the difficult economic environment.
We also developed a strategy for how best to use excess capital
going forward. As part of this plan, we recently initiated the repurchase
of up to $700 million of our common stock, a sign of confidence in
our future. We will continue to look for additional opportunities to
leverage excess capital in ways that add value to our company and
our stockholders.