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REPORT OF EXAMINATION

UNUM LIFE INSURANCE COMPANY OF AMERICA

AS OF

DECEMBER 31, 2008

 

 

State of Maine seal

STATE OF MAINE

BUREAU OF INSURANCE

 

IT IS HEREBY CERTIFIED THAT THE ANNEXED REPORT OF EXAMINATION FOR

Unum Life Insurance Company of America

has been compared with the original on file in this bureau and that it is a correct transcript therefrom and of the whole of said original.

IN WITNESS WHEREOF,

I have hereunto set my hand and affixed the official seal of this Office at the City of Gardiner this

eighteenth day of June, 2010

 

______________________
Mila Kofman
Superintendent of Insurance

 

I hereby certify that the attached report of examination dated December 23, 2009 shows the condition and affairs of the Unum Life Insurance Company of America located in Portland, Maine as of December 31, 2008 and has been filed in the Bureau of Insurance as a public document.


 

This report has been reviewed.

 

______________________
Eric Cioppa
Deputy Superintendent


Dated the eighteenth day of June, 2010

 

 

TABLE OF CONTENTS

SCOPE OF EXAMINATION .................................................................................................................2

SUMMARY OF SIGNIFICANT FINDINGS............................................................................................2

SUBSEQUENT EVENTS........................................................................................................................3

THE COMPANY ...................................................................................................................................3

HISTORY ....................................................................................................................................3
CORPORATE RECORDS ...............................................................................................................4
CORPORATE OWNERSHIP ...........................................................................................................4
CORPORATE GOVERNANCE .........................................................................................................5
CODE OF CONDUCT ....................................................................................................................6
CONFLICT OF INTEREST ..............................................................................................................7
UNUM GROUP OPERATIONS ........................................................................................................7
UNUM US STRUCTURE AND MANAGEMENT ...................................................................................8
FIDELITY BOND AND OTHER INSURANCE .....................................................................................9
EMPLOYEE BENEFITS ...................................................................................................................9
UNUM LIFE INSURANCE COMPANY OF AMERICA — TERRITORY & PLAN OF OPERATION ................9
TRANSACTIONS WITH AFFILIATES .............................................................................................11
GROWTH OF COMPANY ..............................................................................................................11
REINSURANCE ...........................................................................................................................12
ACCOUNTS AND RECORDS .........................................................................................................17
STATUTORY DEPOSITS ...............................................................................................................17

MULTI-STATE MARKET CONDUCT EXAMINATION ...........................................................................17

LITIGATION .......................................................................................................................................18

FINANCIAL STATEMENTS ..................................................................................................................22

COMMENTS ON FINANCIAL STATEMENT ITEMS ..............................................................................27

CONCLUSION ....................................................................................................................................29

APPENDIX A - STATEMENT OF ACTUARIAL OPINION .....................................................................31

 

 

December 23, 2009

Thomas Sullivan, Northeastern Zone
Connecticut Insurance Department
P0 Box 816
Hartford, CT 06142-0816

Scott Richardson, Southeastern Zone
South Carolina Department of Insurance
P0 Box 100105
Columbia, SC 29202-3105

 

Michael T. McRaith, Midwestern Zone
Illinois Department of Insurance
100 West Randolph Street, Suite 9-301
Chicago, IL 60601-3251

Linda Hall, Western Zone
Alaska Division of Insurance
DCCED
550 West 7th Avenue, Suite 1560
Anchorage, AK 99501-3567

 

Mila Kofman
Superintendent of Insurance
Maine Bureau of Insurance
34 State House Station
Augusta, ME 04333-0034

Dear Commissioners and Superintendent:

Pursuant to the provisions of Title 24-A M.R.S.A., § 221 and in conformity with your instructions, a financial examination has been made of the

UNUM LIFE INSURANCE COMPANY OF AMERICA

at its home office in Portland, Maine. The following report is respectfully submitted.

 

SCOPE OF EXAMINATION

Unum Life Insurance Company of America (hereinafter, “Company”) was last examined as of December 31, 2005 by the State of Maine Bureau of Insurance. This examination covers the period from January 1, 2006 to the close of business on December 31, 2008.

This examination was performed pursuant to the risk-focused approach promulgated by the National Association of Insurance Commissioners (hereinafter, “NAIC”), and consisted of a review of the Company’s operations, administrative practices, valuation of assets, and determination of liabilities at December 31, 2008 in conformity with statutory accounting practices, NAIC guidelines, the 2008 Financial Condition Examiners Handbook, (hereinafter, “FCEH”), and the laws, rules, and regulations prescribed or permitted by the State of Maine. To the extent deemed appropriate, we utilized the work-papers of the Company’s independent accountants for the year ending December 31, 2008.

Areas reviewed in this examination included: aggregate reserves for life policies, aggregate reserves for accident and health policies, policy and contract claims, reinsurance contracts, investments, risk-based-capital requirements and cash flow adequacy. To the extent deemed necessary, transactions occurring subsequent to the examination date were reviewed.

The results of this examination present the financial condition of the Company as of December 31, 2008. Comments on various balance sheet items, for purposes of this report, may be limited to matters involving clarification, departures from laws, rules and regulations and/or significant changes in amounts.

SUMMARY OF SIGNIFICANT FINDINGS

Prior Examination
The Company has addressed issues related to accident and health reserves pursuant to the Regulatory Settlement Agreement and the California Settlement Agreement as noted in the Report of Examination for the period ending December 31, 2005.

Current Examination
The Company appears to be in compliance with 24-A M.R.S.A. and the Company’s by-laws.

SUBSEQUENT EVENTS

Subsequent to December 31, 2008, bond portfolio market values changed. The following table provides gross unrealized gains and gross unrealized losses, presented by security type, at December 31, 2009 as reported by the Company in its statutory financial statement:

Security
Category
Book/
Adjusted
Carrying Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Government Bonds $ 858,852,392 $ 32,737,910 $ (33,662,308) $ 857,927,994
U.S. States, Territories and Possessions Bonds 39,651,444 2,452,993 (2,896,172) 39,208,265
U.S. Political Subdivisions Bonds 23,482,609 2,597,393 (400,000) 25,680,002
U.S. Special Revenue 1,832,027,648 164,042,958 (3,850,759) 1,992,219,847
Industrial and Miscellaneous (unaffiliated) Bonds 12,111,911,989 919,307,952 (216,637,326) 12,814,582,615
Credit Tenant Loans 77,528,533 9,755,685 (498,001) 86,786,217
Hybrid Securities 159,820,266 898,007 (32,425,868) 128,292,405
  $15,103,274,881 $ 1,131,792,898 $ (290,370,434) $15,944,697,345

No other significant material subsequent events were noted. See section “Litigation” for additional information.

THE COMPANY

History

The Company was incorporated on August 24, 1966 in the State of Maine and commenced business on September 3, 1966 as Union Mutual Stock Life Insurance Company of America. Effective November 18, 1986 as part of the demutualization plan, the Company changed its name to Unum Life Insurance Company of America.

Effective December 31, 1991, Unum Corporation (hereinafter, “UC”) merged two affiliated companies, Unum Life Insurance Company (hereinafter, “ULIC”) and Unum Pension and Insurance Company (hereinafter, “UPIC”) into the Company. As a result of the merger, the Company became jointly owned by Unum Corporation and Unum Holding Company, a wholly owned subsidiary of Unum Corporation. As a condition of the merger, ULIC paid Unum Corporation $60,000,000 plus accrued interest to retire surplus debentures. In addition, $50,000,000 of surplus debentures between ULIC and the Company were forgiven, along with accrued interest thereon. The Company was also required to increase its paid-in capital stock to an amount of $5,000,000.

In connection with the merger of ULIC and UPIC into the Company, ULIC ceased to be licensed in the State of New York effective December 31, 1991, with all prospective New York business to be transacted by First Unum Life Insurance Company (hereinafter, “First Unum”). As a condition to regulatory approval by the New York Insurance Department, the Company agreed to maintain a security deposit in the State of New York equal to 102% of the outstanding statutory liabilities to New York policyholders, insureds and claimants of ULIC.

In 1996, Commercial Life Insurance Company, an affiliated company writing group universal life and travel accident coverage, was merged with and into the Company.

On November 22, 1998, Provident Companies Inc. (hereinafter, “PC”) and UC signed an agreement providing for the merger of UC into PC with PC being the surviving corporation. The merger closed on June 30, 1999 at which time PC changed its name to UnumProvident Corporation (hereinafter, “UPC”). As part of the approval to merge, the Bureau issued a Decision and Order, dated June 18, 1999, which outlined certain requirements for the Company.

On December 22, 2004 Unum Holding Company was merged into UPC. Accordingly, on December 31, 2004 the Company was a wholly owned subsidiary of UPC.

Effective March 1, 2007, the Company sold its 100% common stock ownership in GENEX Services, Inc., a Pennsylvania corporation.

On March 2, 2007 UPC changed its name to Unum Group.

Corporate Records

The Company’s articles of incorporation, by-laws and minutes of the board of directors’ meetings held during the period under examination were reviewed. Based upon our review, the Company is conducting its affairs in accordance with the statutes of the State of Maine and in accordance with its own charter and by-laws.

Pursuant to the risk-focused examination approach, the articles of incorporation, by-laws, and minutes of the board of directors’ meetings as well as the minutes of all committee meetings under examination of the ultimate parent, Unum Group, were reviewed. Based upon our review, Unum Group is managing its operations in accordance with its corporate documents and committee charters.

Corporate Ownership

The Company is 100% owned by Unum Group, a Delaware Corporation. The table, presented on the next page, describes the corporate ownership chart of Unum Group at December 31, 2008:

Company Incorporation
Unum Group Delaware
Unum Life Insurance Company of America Maine
First Unum Life Insurance Company New York
Unum European Holding Company Limited (1) England
Unum Limited (2) England
Claims Service International Limited (3) England
Group Risk Insurance Services Limited England
UnumProvident Finance Company (4) England
Unum Ireland Limited Ireland
Duncanson & Holt, Inc. New York
Duncanson & Holt Underwriters Ltd. England
Duncanson & Holt Syndicate Management Ltd. England
Trafalgar Underwriting Agencies Ltd. England
Duncanson & Holt Europe Ltd England
Duncanson & Holt Services Inc. Maine
Duncanson & Holt Canada Ltd. Canada
TRI-CAN Reinsurance, Inc. Canada
Duncanson & Holt Asia PTE Ltd. Singapore
Colonial Life & Accident Insurance Company South Carolina
Benefit America Inc. South Carolina
UnumProvident International Ltd. Bermuda
The Paul Revere Corporation Massachusetts
The Paul Revere Life Insurance Company Massachusetts
The Paul Revere Variable Annuity Insurance Co. Massachusetts
Provident Life and Accident Insurance Company (5) Tennessee
Provident Life and Casualty Insurance Company Tennessee
Provident Investment Management, LLC Tennessee
Tailwind Holdings, LLC Delaware
Tailwind Reinsurance Company South Carolina
Northwind Holdings, LLC Delaware
Northwind Reinsurance Company Vermont

 

(1) 80% owned by Unum Group; 20% owned by UnumProvident Finance Company.
(2) 72% owned by Unum European Holding Company Limited; 28% owned by UnumProvident Finance Company.
(3) 50% owned by Unum European Holding Company; 50% owned by Unum Limited.
(4) 99% owned by Unum Group; 1% owned by Provident Investment Management, LLC.
(5) 85.9% owned by Unum Group; 10.1% owned by The Paul Revere Life insurance Company; 4% owned by Unum Life Insurance Company of America.

Corporate Governance

The Company is governed and overseen by the board of directors and the management team of Unum Group. The Company maintains its’ own board of directors and corporate officers, thereby, satisfying certain legal and insurance regulatory requirements. Accordingly, the discussion of corporate governance will focus on governance through Unum Group.

At December 31, 2008 Unum Groups’ board of directors consisted of twelve individuals. Other than Thomas Watjen, President & Chief Executive Officer, all directors were outside directors. Unum Groups’ board of directors approves the strategic direction of the Company’s business and financial objectives, monitors the effectiveness of managements’ implementation of policies and plans and provides oversight and support in achieving corporate objectives.

The board of directors has five standing committees. These committees include audit, human capital, finance, governance and regulatory compliance. Each committee consists of three or more members. Each committee member meets the independence and financial literacy requirements of the New York Stock Exchange, “non employee director”. Each committee member satisfies the “outside director” criteria in accordance with the Securities and Exchange Commission and the Internal Revenue Code.

The audit committee meets quarterly. The independent auditor reports directly to the audit committee and the audit committee oversees the relationship between the auditor and the Company. Additionally, the audit committee oversees the work performed by the internal audit department and reviews their findings with management. The audit committee has additional oversight of compliance with the Company’s code of business conduct and ethics.

The human capital committee is responsible to evaluate and approve all compensation packages of directors and executive officers. The human capital committee has the authority to engage outside consultants regarding compensation issues.

The finance committee assists in investment and related financial oversight. The finance committee has the express authority to approve banking and brokerage relationships. The finance committee reports to the board of directors on present and future capital requirements and develops and oversees compliance with investment strategies, guidelines and policies.

The governance committee is responsible for identifying individuals qualified to become board members, The governance committee recommends corporate governance principles, oversees the evaluation of the board and management, recommends directors to serve on standing committees and participates in annual performance evaluations of the committees.

The regulatory committee is responsible for oversight of state and federal insurance regulatory matters and related risks. The Company’s regulatory compliance unit reports directly to the board of directors.

During 2008, all committees met on a timely basis in accordance with their charter.

Code of Conduct

Unum Group has a code of business practices and ethics for directors, officers and employees. In addition, the chief executive officer, chief financial officer, and certain other direct reports are subject to a code of ethics for chief executive officer and financial executives.

The codes apply throughout the organization as general statements of policy. Policy statements cover anti-money laundering, appropriate use of company assets, privacy of company assets, broker compensation disclosure, confidentiality, expense reimbursement, equal employment opportunity, fraud, embezzlement, theft, harassment, insider trading, internet security, internet usage, e-mail security, e-mail usage and other specific issues.

Conflict of Interest

Each director and officer is required to complete a conflict of interest statement annually to disclose any material interest or affiliation which is likely to be in conflict with his/her official duties and responsibilities to Unum Group. Review of the statements on file disclosed substantial compliance with the conflict of interest policy.

Unum Group Operations

As noted in Unum Group’s 2008 annual report to shareholders Unum Group operates in three segments:

1) UnumUS
Unum US is the market leader in both group and individual disability insurance and group long term care and one of the largest providers of group life and voluntary benefits. The Company is included in this segment and accounts for approximately half of the revenue of Unum US.

2) UnumUK
Unum UK is a leading provider of group disability benefits in the United Kingdom and an innovator in vocational rehabilitation services.

3) Colonial Life
Colonial Life is a leading provider of voluntary worksite benefits.

Thomas Watjen is Unum Group’s president arid chief executive officer. Reporting directly to Thomas Watjen are the following persons:

 

Name Title
Robert Carl Greving* Executive Vice President, Chief Financial Officer & Chief Actuary, Unum Group
Eileen Farrar Senior Vice President, Corporate Human Resources, Unum Group
Joseph Foley Senior Vice President, Chief Marketing Officer, Unum Group
B. Frank Williamson Senior Vice President, Capital Management & Chief Investment Officer, Unum Group
Elmer Liston Bishop III Executive Vice President, General Counsel, Unum Group
Susan Ring Chief Executive Officer, Unum UK
Randall Horn President & Chief Executive Officer, Colonial Life
Kevin Paul McCarthy President & Chief Executive Officer, Unum US

 

* On February 3, 2009 Robert Greving announced his pending retirement. On June 22, 2009 Unum Group announced that Richard P. McKenney will be appointed EVP and CFO replacing Mr. Greving.

Unum US Structure and Management

Unum US consists of the following legal entities:

Unum Life Insurance Company of America
The Paul Revere Life Insurance Company
The Paul Revere Variable Annuity Insurance Company
Provident Life and Accident Insurance Company
Provident Life and Casualty Insurance Company
First Unum Life Insurance Company

Officers of the Unum US companies, including the Company, as listed in the statutory annual statements, are:

Name Title
Thomas Ros Watjen President, Chief Executive Officer & Chairman, Unum Group
Kevin Paul McCarthy President & Chief Executive Officer, Unum US
Robert O'Hara Best Executive Vice President & Chief Operating Officer, Unum US
Elmer Liston Bishop III Executive Vice President & General Counsel, Unum Group
Robert Carl Greving* Executive Vice President, Chief Financial Officer & Chief Actuary, Unum Group
Susan Nance Roth Vice President, Transactions, SEC & Secretary, Unum Group
Kevin Ambrose McMahon Vice President & Treasurer, Unum Group
Joseph Richard Foley Senior Vice President, President & Chief Marketing Officer, Unum Group
Vicki Wright Corbett Vice President & Controller, Unum Group
Albert Angelo Riggieri Jr. Vice President, Chief Actuary & Appointed Actuary, Unum US

 

* On February 3, 2009 Robert Greving announced his pending retirement. On June 22, 2009 Unum Group announced that Richard P. McKenney will be appointed EVP and CFO replacing Mr. Greving.

In addition to the officers listed in the statutory annual statements, the Company identified the following individuals as officers of Unum US:

 

Name Title
Roger Luc Martin Senior Vice President, Chief Financial Officer, Unum US
Michael Simonds Senior Vice President, Chief Marketing Officer, Unum US
Christopher Collins Senior Vice President, General Counsel, Unum US
John McGarry Senior Vice President, Benefits & Chief Risk Officer, Unum US
Stephen Meahl Senior Vice President, Chief Distribution Officer, Unum US

The examiner-in-charge and the director of examinations interviewed most of the aforementioned officers. All officers appeared to be qualified in terms of experience and knowledge. It is apparent from the interview process that knowledge of business processes, plans, results, risk areas are shared amongst senior management of the companies.

In addition to the officers, the chairman of the audit committee was also interviewed. Mr. Passarella’s background appeared appropriate for this position and indicated that the audit committee met regularly with the independent auditors and internal auditors.

Management and administrative services for Unum US are provided by Unum Group through a general services agreement. Unum US companies do not have any employees.

Information technology resources are also provided by Unum Group.

As of December 31, 2008, the board of directors for the Unum US companies consisted of the following members:

Name Title
Thomas Ros Watjen President, Chief Executive Officer & Chairman, Unum Group
Kevin Paul McCarthy President & Chief Executive Officer, Unum US
Robert O'Hara Best Executive Vice President & Chief Operating Officer, Unum US
Elmer Liston Bishop III Executive Vice President & General Counsel, Unum Group
Joseph Richard Foley Senior Vice President & Chief Marketing Officer, Unum Group
Robert Carl Greving* Executive Vice President, Chief Financial Officer & Chief Actuary, Unum Group
Roger Luc Martin SVP, CFO, Unum US

 

* On February 3, 2009 Robert Greving announced his pending retirement. On June 22, 2009 Unum Group announced that Richard P. McKenney will be appointed EVP and CFO replacing Mr. Greving.

Fidelity Bond and Other Insurance

The Company is protected as a named insured under a blanket fidelity bond issued to Unum Group. The bond amount was reviewed and was determined to be adequate. The Company maintains other insurance policies including property and equipment, automobiles, general liability, and directors and officers’ liability.

Employee Benefits

The Company has no employees, and, therefore, has no benefit plans. The Company purchases services from its affiliates in accordance with an intercompany cost sharing arrangement. There is no material obligation on the part of the Company beyond the amounts paid as part of the cost of services purchased.

Unum Life Insurance Company of America — Territory & Plan of Operation

Territory

The Company is licensed to transact business as a life and health insurer in all states including the District of Columbia, with the exception of New York. The Company also is licensed in Guam and Puerto Rico.

Certificates of Authority and/or other evidence of permission to do business in the respective jurisdictions were viewed and found to be in proper order and in effect.

Plan of Operation

The Company primarily writes group long term disability insurance, individual disability insurance, long term care insurance, group life insurance and group accidental death & dismemberment insurance. Products are marketed using the brand name “Unum”. Distribution is primarily through a network of Company sales representatives and independent brokers.

Group Long-Term Disability Insurance

Group long-term disability insurance (hereinafter, “LTD”) contracts are generally written to employer groups and protect the insured employee from loss of income due to disability. LTD benefits begin after the satisfaction of an elimination period until the maximum benefit duration, frequently to age 65, is reached. Income replacement is generally set at 50% to 70% of pre-disability income. Elimination periods range from 30 days to 365 days with the most common being 90 days and 180 days. The majority of contracts include a two year “own occupation” definition of disability followed by an “any occupation” definition.

Individual Disability Insurance

The Company’s individual disability insurance (hereinafter, “IDI”) contracts provide monthly or lump sum benefits to policyholders during periods of total or residual (partial) disability after the satisfaction of an elimination period. The portfolio of products includes a broad array of policy forms for both personal and business uses with optional riders such as cost of living, future purchase options, etc., which provide for additional benefits. Certain policy forms include a provision that allows the policyholder to convert the IDI policy to a long term care policy that is issued at the time of conversion, The definition of disability ranges from “loss of earnings” to “inability to perform your own occupation”, and benefits are generally provided until age 65 or for the policyholder’s lifetime.

Long Term Care Insurance

Long term care insurance (hereinafter, “LTC”) pays for services needed for those who cannot take care of themselves. Services include skilled nursing care and personal care services that may be received in a nursing home, assisted living facility, or at home. LTC benefits are paid if the policyholder suffers the loss of two or more activities of daily living (hereinafter, “ADL”) and requires stand-by assistance of another person or suffers cognitive impairment. There are six ADL’s, which include bathing, dressing, transferring, toileting, continence, and feeding. The LTC policyholder can choose from various combinations of daily or monthly benefit amounts, elimination periods (waiting period), and benefit periods. The maximum lifetime benefit available to the policyholder is the daily or monthly benefit amount multiplied by the benefit period. Virtually all of the Company’s in force LTC as of December 31, 2008 was indemnity type coverage that pays the full daily or monthly benefit amount without regards to the actual expenses incurred.

Group Life Insurance

The Company offers group term life insurance and no longer markets group universal life insurance and group paid-up life insurance. The group term life insurance provides death benefit coverage. A premium waiver benefit is offered under group term life insurance contracts. In the event of disability the benefit under the contract is extended without the payment of any additional premium. The disability must occur prior to age 60. An elimination period applies. The group universal life insurance allows the certificate holder to accumulate the premium they deposit in excess of what is required to cover the cost of insurance deductions in a side fund that earns interest. The group paid-up life insurance provides death benefit coverage. Beneficiaries can elect for the death benefit under group life insurance to be received in the form of a supplementary contract with or without life contingencies. The result is a deferral in the payment of cash to the beneficiary at the beneficiaries’ option, allowing the beneficiary time to make decisions about the benefit payment while earning interest. Depending on how long the beneficiary chooses to wait before receiving funds, the Company may collect a small amount of interest.

Group Accidental Death & Dismemberment Insurance

Group accidental death & dismemberment insurance (hereinafter, “AD&D”) provides a payment in the event of accidental death or the loss of one or more body parts. The Company sells AD&D insurance in combination with group life policies. Beneficiaries can elect for the benefit under group AD&D to be received in the form of a supplementary contract with or without life contingencies. The result is a deferral in the payment of cash to the beneficiary at the beneficiaries’ option allowing the beneficiary time to make decisions about benefit payment while earning interest.

Transactions with Affiliates

The Company is a party to a written tax sharing agreement with the consolidated group members listed above. The agreement provides that the portion of the consolidated tax liability allocated to the Company is based on its separate return tax liability.

The Company provides to and receives from its affiliates certain administrative, technical and managerial support pursuant to the terms of service agreements.

In addition, the Company participates in short-term borrowing arrangements with affiliated companies.

Growth of Company

The following table presents changes in the Company’s balance sheet since December 31, 2005:

  December 31,
2008
December 31,
2005*
Increase/
(Decrease)
Admitted Assets $ 16,882,899,585 $ 15,138,779,884 $ 1,744,119,701
Liabilities 15,529,649,439 13,903,670,894 1,625,978,545
Capital Common Stock 5,000,000 5,000,000 -
Gross Paid in and Contributed Surplus 1,507,631,865 1,207,631,865 300,000,000
Deferred Gain on Reinsurance Transactions 98,626,784 70,351,405 28,275,379
Special Surplus Funds - 5,000,000 (5,000,000)
Unassigned Funds (Surplus) (258,008,503) (52,874,280) (205,134,223)
Total Capital and Surplus 1,353,250,146 1,235,108,990 118,141,156
Total Liabilities, Capital and Surplus $ 16,882,899,585 $ 15,138,779,884 $ 1,744,119,701

* per the December 31, 2005 Maine Bureau of Insurance Report of Examination

The following table presents the net premium income for each of the years under examination:

  2008 2007 2006
Ordinary Life $ 11,736,060 $ 12,585,144 $ 13,068,096
Group Life 543,041,959 519,816,283 653,541,259
Accident & Health - Group 2,160,942,149 2,244,084,814 2,340,808,877
Accident & Health - Other 4,344,676 10,072,108 264,674,042
  $ 2,720,064,844 $ 2,786,558,349 $ 3,272,092,274

 

The following table presents the net gain/(loss) from operations by line of business. The net gain/(loss) is reported after federal income tax but before net realized capital gain/(loss) for each of the years examined:


  2008 2007 2006
Ordinary Life $ 1,075,225 $ (15,303,950) $ (493,821)
Individual Annuities 5,227 17,628 151,342
Ordinary Supplemental Contracts 18,214,070 20,076,955 25,153,215
Group Life 74,141,053 87,527,112 94,205,737
Group Annuities (3,792,587) 787,028 963,517
Accident & Health - Group 136,734,646 85,019,804 (131,083,335)
Accident & Health - Other 45,186,621 78,108,007 38,210,890
All Other Lines (2,794,917) (6,868,916) (5,040,323)
  $ 268,769,338 $ 249,363,668 $ 22,067,222

 

Reinsurance

The Company routinely assumes and cedes reinsurance with other insurance companies. The following describes some of the Company’s significant reinsurance programs in effect at December 31, 2008.

Individual Disability Income

Reinsurance Ceded

Effective January 1, 2007, the Company recaptured a block of IDI business originally ceded to General Re Life Corporation. The recaptured business included approximately $163 million of reserves.

Effective January 1, 2007, the Company ceded to Northwind Reinsurance Company, an affiliate, a block of IDI business. The modified coinsurance transaction was executed on an arms-length basis. The modified coinsurance reserve at the initiation of the transaction was comprised of approximately $2,240,000,000 of reserves held by the Company and approximately $436,000,000 of reserves previously assumed by the Company on a modified coinsurance basis from an unaffiliated reinsurer. At December 31, 2008, ceded reserves held by the Company amounted to approximately $2,660,000,000.

The Company has excess-of-loss reinsurance contracts with Lincoln National Life Insurance Company, Munich American Reassurance Company, and Swiss Re Life & Health America Inc. The retention limit for personal IDI business is generally $8,000 in monthly benefits. The retention limit for business expense contracts is generally $20,000 in monthly benefits. The retention limit for business buy/sell contracts is generally $500,000 of total benefits. On January 1, 2007, the Company recaptured an excess-of-loss reinsurance contract with Cologne Reinsurance Company of America with annualized premium income of approximately $7,000,000.

Substantially all of the association IDI block is ceded to Employers Reassurance Corporation on a 100% quota share basis through various reinsurance agreements effective October 31, 2003, and retroactive to April 1, 2003.

Reinsurance Assumed

The Company assumes a quota share, ranging from 50% to 100%, of non-cancelable IDI risk on both a coinsurance and modified coinsurance basis from National Life Insurance Company, Indianapolis Life Insurance Company, Protective Life Insurance Company, and Penn Mutual Life Insurance Company. These agreements cover claims incurred and policies issued prior to the inception of the treaties as well as policies issued subsequently and their related claims. These treaties are closed to new business as of December 31, 2005. Collectively, this business comprises the private label segment. As of December 31, 2008, the assumed reserves and unpaid losses amounted to approximately $443,000,000.

The Company assumed a 100% quota share of all non-cancelable IDI policies issued by affiliate First Unum. The agreement was effective January 1, 1996. Existing claims as of January 1, 1996 were not assumed. As of December 31, 2008, the assumed reserves and unpaid losses amounted to approximately $192,000,000.

Long Term Disability

Reinsurance Ceded

Effective December 31, 1997, the Company entered into a funds-withheld coinsurance treaty with UnumProvident International Limited (hereinafter, “UPIL”) in Hamilton, Bermuda through which the Company reinsures 99% of U.S. LTD claims incurred between disability years 1993 and 1998. Effective July 1, 2008, the Company entered into a modified coinsurance agreement with UPIL that ceded 100% of a closed block of LTD claims incurred in 2002, 2003, and 2004. Ceded reserves at December 31, 2008 amounted to approximately $2,650,000,000.

Effective January 1, 2001, the Company retro-ceded 100% of a block of LTD reinsurance business to ACE Tempest Reinsurance Company Ltd and ACE Capital Reinsurance Ltd. Ceded LTD reserves at December 31, 2008 amounted to approximately $217,000,000.

Effective January 1, 2006, the Company entered into a modified coinsurance agreement with the Tailwind Reinsurance Company, a special purpose financial captive insurance company closed to all other types of business. This agreement ceded 100% of a closed block of LTD claims incurred in 1999, 2000, and 2001. The modified coinsurance reserve at December 31, 2008 amounted to approximately $968,000,000.

Reinsurance Assumed

Effective October 1, 2002, the Company assumed the LTD business of affiliates Provident Life and Accident Insurance Company and The Paul Revere Life Insurance Company (hereinafter, “PRLIC”). 100% of the risk not previously ceded on these blocks was assumed except for 10% of the risk for policies issued in the state of New York by PRLIC. As of December 31, 2008, the assumed reserves and unpaid losses amounted to approximately $603,000,000. The Company participates in many treaties in which it assumes LTD risk from other carriers. The treaties are part of the reinsurance segment managed by Custom Disability Solutions. Material LTD assumed treaties are as follows:

  1. The participation varies by pool year for the Company’s assumed Group LTD business from American Disability Reinsurance Underwriters effective in 1992. The Company’s reserves on this coinsurance treaty at December 31, 2008 amounted to approximately $58,000,000.
  2. The participation varies by pool year for the Company’s assumed Group LTD business from American Disability Reinsurance Underwriters effective in 1995. The Company’s reserves on this coinsurance treaty at December 31, 2008 amounted to approximately $104,000,000.
  3. Effective January 1, 1990, the Company assumed, pursuant to a coinsurance agreement with the London Accident Reinsurance Group, personal accident coverage. The Company reserves for paid losses payable at December 31, 2008 amounted to approximately $23,000,000.

Life Insurance

Reinsurance Ceded

The Company reinsures its group life certificates on a quota share basis with Hannover Life Reassurance Ltd (hereinafter “HAN”) and SCOR Reinsurance Company (hereinafter, “SCOR”). HAN takes 25% of the mortality risk, and SCOR takes 25% of the mortality risk. Beyond the share of risk assumed, the reinsurance treaties are not materially different. The original reinsurance agreements were entered into on October 1, 2000, with Manulife Reinsurance Corporation and SCOR. HAN replaced Manulife Reinsurance Corporation on January 1, 2005.

The treaties are on a funds-withheld basis. Under this arrangement money normally does not exchange hands except for the quarterly payment of the reinsurance charge. The Company retains the funds on net cash flows.

The treaties have an experience refund mechanism. At the end of each calendar year the Company retains the profit for the year reduced by any amounts needed to pay back past amounts advanced by the reinsurers due to negative experience.

Experience account balances that become negative under the treaty require the reinsurer to make a payment to the Company equal to the negative amount. The Company restores the payment to the reinsurer out of future profits. The restoration can occur over a period of years. The treaties cannot be terminated if a balance owed by the Company has not been restored.

The treaties provide protection to the Company against significant mortality events in a year by providing basic liquidity and insulate the Company from loss of surplus in such circumstances. The annual cost for this mechanism is the reinsurance expense charges and the cost of the letters of credit.

In addition to the quota share agreements, the Company reinsures its Group Life business with General Re Life Corporation (hereinafter, “GEN RE”). The GEN RE reinsurance agreement is an excess of loss treaty. The Company cedes claims in excess of $600,000 for 2006 through 2008 incurred claims and claims in excess of $500,000 for all claims incurred prior to January 1, 2006. For claims that exceed $2,500,000, the excess over $2,500,000 is retained by the Company. The GEN RE treaty is applied first. The HAN and SCOR participation is net of the GEN RE reinsurance. The GEN RE agreement has an experience refund mechanism similar to that described above for the HAN and SCOR treaties.

The Company takes a reserve credit for a small portion of the group life incurred but not reported reserve (hereinafter, “IBNR”). The reserve credit is, for the most part, related to the association life business that is ceded to Employers Reassurance Corporation. Otherwise, the Company does not take reserve credits for reinsurance on group life.

Effective October 1, 1996, the Company entered into a 100% coinsurance agreement ceding its tax sheltered annuity business to Lincoln National Life Insurance Company and Lincoln Life and Annuity Insurance Company of New York. Ceded reserves at December 31, 2008 amounted to approximately $168,000,000.

The Company entered into a 100% indemnity coinsurance contract with Reassure America Life Insurance Company on July 1, 1997 in which the Company ceded its individual life and annuity block of business. At December 31, 2008, ceded reserves for this block of business amounted to approximately $94,000,000.

Reinsurance Assumed

No significant reinsurance arrangements for life products noted.

Long Term Care

Reinsurance Ceded

The Company cedes 100% of the net long term care business to an affiliate, UPIL. The reinsurance agreement is on a funds withheld basis and became effective on January 1, 2003. As of December 31, 2008 reserve credits taken for this reinsurance amounted to approximately $2,900,000,000.

Blocks of long term care insurance not ceded to UPIL are ceded to Employers Reassurance Corporation and MedAmerica Insurance Company. Employers Reassurance Corporation assumes the American Integrity Insurance Company (a Pennsylvania company liquidated in 1994) IDI block and a block of group contracts sold to members of continuing care retirement centers. MedAmerica Insurance Company assumes the Connecticut partnership block which includes group contracts sold to employees of the State of Connecticut. As of December 31, 2008 reserve credits taken for this reinsurance amounted to approximately $11,000,000.

Effective December 31, 1999, the Company entered into an agreement to retro-cede 100% of the business assumed from American Long-Term Care Reinsurance Group to American United Life Insurance Company. As of December 31, 2008, reserve credits taken for this reinsurance arrangement amounted to approximately $167,000,000.

Reinsurance Assumed

Effective January 1, 1993, the Company entered into an agreement to assume individual long term care business from American Long-Term Care Reinsurance Group. As of December 31, 2008 the assumed reserves and unpaid losses amounted to approximately $167,000,000. This business is fully retro-ceded to American United Life Insurance Company.

Effective October 1, 1998, the Company entered into an agreement to assume individual long term care business from Old American Insurance Company, a subsidiary of Kansas City Life Insurance Company. The risk is assumed on a 50% coinsurance basis. This is a closed block of home health care only policies. As of December 31, 2008, the assumed reserves and unpaid losses amounted to approximately $10,000,000.

Accounts and Records

Evaluation of Controls in Information Systems

As part of the information systems review, reliance was placed on review of the Company’s response to Exhibit C — Information Systems Questionnaire. Interviews with Company staff were conducted to gather supplemental information and corroborate the Company’s responses to the questionnaire. In addition, Sarbanes-Oxley related work performed by Ernst and Young (the Company’s external auditor) was reviewed with specific emphasis on information technology issues. Included in the scope of this review were management and organization controls, logical and physical security controls, changes to applications, system and program development, contingency planning, operations and processing controls.

Administrative Offices

The primary financial reporting activities are conducted at the offices of Unum Group in Chattanooga, Tennessee.

Statutory Deposits

As required by 24-A M.R.S.A. §412, the Company has maintained the required security deposit with the Treasurer of Maine. The following schedule reflects security deposits maintained in other jurisdictions:

Jurisdiction Aggregate
Statement
Value
Aggregate
Market
Value
California $ 30,546,373 $ 27,031,180
Georgia 30,110 44,034
Guam 64,754 64,754
Massachusetts 476,737 697,210
New Mexico 105,384 154,120
New York 237,203,936 222,109,114
North Carolina 416,518 609,141
Puerto Rico 560,260 481,910
Virginia 225,823 330,257
Other 15,717,464 13,966,850
Total Deposits $ 285,347,359 $ 265,488,570

 

MULTI-STATE MARKET CONDUCT EXAMINATION

During 2004 and 2005, certain of Unum Group’s insurance subsidiaries entered into settlement agreements with various regulators related to disability claims handling practices. The agreements provided for changes in certain Unum Group’s claims handling procedures and a claim reassessment process for certain claimants whose claims were denied or closed during specified periods. The agreements were to remain in place until the later of January 1, 2007 or the completion of an examination of claims handling practices and an examination of the reassessment process, both of which were to be conducted by the lead state regulators. The settlement agreements also provided for a contingent fine of up to $145,000,000 to Unum Group’s applicable U.S. insurance subsidiaries, in aggregate, in the event that Unum Group failed to satisfactorily meet the performance standards in the settlement agreements relating to the examinations referred to above. The parties to the agreements subsequently agreed to extend the reassessment process until December 31, 2007.

In the second quarter of 2007, Unum Group increased its provision for the estimated cost of the claim reassessment process by $63,500,000 before tax and $50,500,000 after tax based upon changes in the Company’s emerging experience related to the number of decisions overturned and the average cost per reassessed claim. The revised second quarter 2007 estimate was based upon the cost of approximately 99% of the potential inventory of claims reassessment information forms returned to Unum Group, with the claim reassessment performed on approximately 88% of the forms completed at that time. At the time of the second quarter 2007 revision, Unum Group had not yet finalized its claim reassessment on the remaining forms but had performed a financial review and included that information in its analysis of emerging experience.

During 2007, Unum Group completed the claims reassessment process required by the regulatory settlement agreements. The lead regulators conducted a final examination and presented their findings to Unum Group’s board of directors and management on April 14, 2008. The report of the multistate market conduct examination performed by the Maine Bureau of Insurance, the Massachusetts Division of Insurance, the New York State Insurance Department, the Tennessee Department of Commerce and Insurance, and other participating jurisdictions as well as the report of the California Department of Insurance market conduct examination indicated that Unum Group satisfactorily complied with each of the agreements’ mandates and that no fines were to be assessed.

LITIGATION

In the normal course of its business operations, the Company is involved in litigation from time to time with its claimants, beneficiaries and others. The Company believes that it has valid defenses in all material suits and is in the process of defending its position. The Company’s representations in this regard were confirmed through direct correspondence with the Company’s outside legal counsel. In the opinion of management, the ultimate liability, if any, arising from this litigation is not expected to have a material effect on the financial position of the Company.

Claims Handling Matters

Policyholder Class Actions

On July 15, 2002, Rombeiro v. Unum Life Insurance Company of America, et al., was filed in the Superior Court of California and subsequently was removed to federal court, alleging that the plaintiff was wrongfully denied disability benefits under a group long-term disability plan. On January 21, 2003, an amended complaint was filed on behalf of a putative class of individuals that were denied or terminated from benefits under group long-term disability plans, seeking injunctive and declaratory relief and payment of benefits. On April 30, 2003, the court granted in part and denied in part the defendants’ motion to dismiss the complaint. On May 14, 2003, the plaintiff filed a second amended complaint seeking similar relief.

Between November 2002 and November 2003, additional similar putative class actions were filed in (or later removed to) federal district courts in Illinois, Massachusetts, New York, Pennsylvania, and Tennessee. The complaints alleged that the putative class members’ claims were evaluated improperly and allege that Unum Group and its insurance subsidiaries breached certain fiduciary duties owed to the class members under the Employee Retirement Income Security Act (hereinafter, “ERISA”), Racketeer Influenced Corrupt Organizations Act (hereinafter, “RICO”), and/or various state laws. The complaints sought various forms of equitable relief and money damages, including punitive damages.

These actions all were transferred to the Eastern District of Tennessee multidistrict litigation. On December 22, 2003, the Tennessee Federal District Court entered an order consolidating all of the above actions for all pretrial purposes under the caption In re UnumProvident Corp. ERISA Benefit Denial Actions and appointed a lead plaintiff. A consolidated amended complaint was filed on February 20, 2004.

Court ordered mediation has concluded with the settlement of all individual claims brought by seven of the fifteen named plaintiffs. An eighth plaintiff has subsequently resolved her claims through the process established under the regulatory settlement agreements.

On January 12, 2009, in a two-to-one decision, the Sixth Circuit Court of Appeals reversed the District Court’s earlier ruling certifying a class. On January 26, 2009, the plaintiffs filed a petition for en banc rehearing of this decision. The District Court has yet to rule on Unum Group’s pending motions for judgment on the pleadings or for summary judgment.

On April 30, 2003, a separate putative class action, Taylor v. UnumProvident Corporation, et al., was filed in the Tennessee Circuit Court and subsequently removed to Federal Court. The complaint alleges claims against Unum Group and certain subsidiaries on behalf of a putative class of long-term disability insurance policyholders who did not obtain their coverage through employer sponsored plans and who had a claim denied, terminated, or suspended by a Unum Group subsidiary after January 1, 1995, seeking equitable and monetary relief. Plaintiff alleges that the defendants violated various state laws by engaging in unfair claim practices and improperly denying claims. The trial court subsequently dismissed the plaintiff’s claims for equitable relief and punitive damages and, most recently, denied certification of a class action. On September 23, 2008, the Sixth Circuit Court of Appeals denied plaintiff’s petition to appeal the denial of class certification; on the following day the District Court dismissed all of the plaintiff’s additional claims except for plaintiff’s individual claims for breaches of contract and fiduciary duty and alleged violation of the Tennessee Consumer Protection Act.

Other Claim Litigation

Unum Group and its insurance subsidiaries, including the Company, as part of its normal operations in managing claims, are engaged in claim litigation where disputes arise as a result of a denial or termination of benefits. Most 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 its general claim litigation, Unum Group and its insurance company subsidiaries, including the Company, maintain reserves based on experience to satisfy judgments and settlements in the normal course. Management expects that the ultimate liability, if any, with respect to general claim litigation, after consideration of the reserves maintained, will not be material to the financial condition of the Company. 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 the Company’s results of operations in a period, depending on the results of operations of the Company for the particular period. The Company is unable to estimate the range of reasonably possible punitive losses.

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, Unum Group monitors these cases closely and defends itself appropriately where these allegations are made.

Broker Related Matters

Broker Compensation, Quoting Process

Since October 2004, Unum Group and/or its insurance subsidiaries have received subpoenas or information requests from state regulatory or investigatory agencies of at least seven states including Connecticut, Florida, Maine, Massachusetts, North Carolina, South Carolina, and Tennessee. The subpoenas and/or information requests relate to, among other things, compliance with ERISA relating to Unum Group’s interactions with insurance brokers and to regulations concerning insurance information provided by Unum Group to plan administrators of ERISA plans, as well as compliance with state and federal laws with respect to quoting processes, producer compensation, solicitation activities, policies sold to state or municipal entities, and information regarding compensation arrangements with brokers.

Unum Group has cooperated fully with all investigations and will continue to do so.

Broker Related Litigation

Unum Group and certain of its subsidiaries, along with many other insurance brokers and insurers, have been named as defendants in a series of putative class actions that have been transferred to the U.S. District Court for the District of New Jersey for coordinated or consolidated pre-trial proceedings as part of multidistrict litigation (hereinafter, “MDL”) No. 1663, In re Insurance Brokerage Antitrust Litigation. The plaintiffs in the MDL No. 1663 filed a consolidated amended complaint in August 2005, which alleges, among other things, that the defendants violated federal and state antitrust laws, RICO, ERISA and various state common law requirements by engaging in alleged bid rigging and customer allocation and by paying undisclosed compensation to insurance brokers to steer business to defendant insurers. Defendants filed a motion to dismiss the complaint on November 29, 2005. On April 5, 2007, defendants’ motion to dismiss was granted without prejudice as to all counts except the ERISA counts. Plaintiffs were granted a last opportunity to file an amended complaint, and they did so on May 22, 2007. On June 21, 2007, defendants filed a motion to dismiss and for summary judgment on all counts. On August 31, 2007 and September 28, 2007, plaintiffs’ federal antitrust and RICO claims were dismissed with prejudice. Defendants’ motion for summary judgment on the ERISA counts was granted on January 14, 2008. All pending state law claims were dismissed without prejudice. Plaintiffs have filed an appeal with the Third Circuit Court of Appeals of the order dismissing their federal antitrust and RICO claims.

The Company is defendant in an action styled, Palm Tree Computers System, Inc. v. ACE USA, etal., which was filed in the Florida State Circuit Court on February 16, 2005. The complaint contains allegations similar to those made in the multidistrict litigation referred to above. The case was removed to Federal Court and, on October 20, 2005, the case was transferred to the District of New Jersey multidistrict litigation. Plaintiffs’ recently renewed a motion to remand the case to Florida State Court, and that motion is currently being briefed.

Miscellaneous Matters

In September 2003, United States of America ex. rel. Patrick J. Loughren v. UnumProvident Corporation and GENEX Services, Inc., was filed in the United States District Court for the District of Massachusetts. This is a qui tam action to recover damages and civil penalties on behalf of the United States of America alleging violations of the False Claims Act by Unum Group and its former GENEX subsidiary. In accordance with the False Claims Act, the action was originally filed under seal to provide the government the opportunity to investigate the allegations and prosecute the action if they believed that the case had merit and warranted their attention. The government declined to prosecute the case and the case became a matter of public record on December 23, 2004. The complaint alleges that Unum Group defrauded the government by inducing and or assisting disability claimants to apply for disability benefits from the Social Security Administration (hereinafter, “SSA”) when Unum Group allegedly knew that the claimants were not disabled under SSA criteria. Unum Group filed a motion for summary judgment which was denied on September 15, 2008. The case proceeded to trial at which seven out of 95 claims were adjudicated. Unum Group prevailed on four of the claims, the Relator prevailed on two of the claims, and the jury could not reach a verdict on one of the claims. The jury awarded the Relator $850 in damages which was trebled. The court also assessed a penalty of $11,000 for each of the two claims. On February 24, 2009, the court also ruled that the testimony of the Relator’s expert in support of extrapolation would be excluded. The court has since granted a request that it enter a final and separate judgment on the two claims decided against the Company and the Company has filed an appeal with the First Circuit Court of Appeals. The District Court has stayed further trial of the remaining claims pending the outcome of the Company’s appeal.

In May 2007, Roy Mogel, Todd D. Lindsay and Joseph R. Thorley individually and on behalf of those similarly situated v. Unum Life Insurance Company, was filed in the United States District Court for the District of Massachusetts. This is a putative class action alleging that the Company breached fiduciary duties owed to certain beneficiaries under certain group life insurance policies when the Company paid life insurance proceeds by establishing interest-bearing retained assets accounts rather than by mailing checks. Plaintiffs seek to represent a class of beneficiaries under group life insurance contracts that were employee welfare benefit plans under ERISA and under which the Company paid death benefits pursuant to a retained asset account. Plaintiffs seek to recover on behalf of the class the difference between the interest paid to them and amounts alleged to have been realized by the Company through its investment of the retained assets. On February 4, 2008, the court granted the Company’s motion to dismiss all claims, but on November 6, 2008, the First Circuit Court of Appeals vacated the District Court’s order. The Company’s petition for rehearing in the First Circuit Court of Appeals was denied on January 21, 2009, and the case is now being remanded to the District Court.

Summary

Various lawsuits against Unum Group, in addition to those discussed above, have arisen in the normal course of business. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning Unum Group’s compliance with applicable insurance and other laws and regulations.

Given the complexity and scope of Unum Group’s 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 where noted in connection with specific matters. It is possible that the Company’s 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 the Company’s results of operations or cash flows for the particular period. Unum Group believes, however, that the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and rights to indemnification, should not have a material adverse effect on its financial position.

FINANCIAL STATEMENTS

The accompanying financial statements fairly present, in all material respects, the Company’s statutory financial position as of December 31, 2008 and statutory results of operations for the period then ended. The financial statements as of December 31, 2007 and December 31, 2006 are unexamined and are presented for comparative purposes only.

STATEMENT OF ADMITTED ASSETS, LIABILITIES AND SURPLUS
as of December 31, 2008, 2007 and 2006

  2008 2007 2006
Admitted Assets   (unexamined) (unexamined)
Bonds $ 14,591,459,961 $ 14,523,516,233 $ 13,837,410,964
Preferred stocks 207,894,090 219,548,169 181,202,160
Common Stocks 38,407,169 18,608,967 146,738,329
Mortgage loans on real estate 694,531,377 616,044,978 635,156,761
Real estate 89,509,084 91,460,209 91,353,610
Cash (50,365,308) (25,186,284) (53,794,531)
Cash equivalents 413,661,104 142,671,558 306,255,476
Short-term investments 33,642,418 - -
Contract loans 71,606,828 72,487,690 72,029,761
Other invested assets 67,028,637 57,973,332 52,361,998
Receivable for securities 978,188 484,428 20,919,602
Options, caps, floors and insurance options - 1,076,000 3,537,000
Investment income due and accrued 204,305,952 193,478,847 180,748,840
Premiums and other considerations 129,507,539 153,896,031 183,973,679
Amounts recoverable from reinsurers 98,845,112 71,389,623 51,130,992
Funds held by reinsured companies - 9,114,563 13,027,836
Reinsurance Receivable 42,709,662 40,005,437 33,434,696
Amounts receivable relating to uninsured plans 5,201,034 5,762,616 4,476,385
Federal & Foreign Income Tax Recoverable - 12,679,139 -
Net deferred tax asset 64,404,952 50,929,000 90,058,000
Guaranty funds receivable or on deposit 14,728,955 8,594,568 6,076,121
Intercompany Receivables 8,463 33,757 1,136,464
Corporate owned life insurance 156,987,505 151,900,566 145,239,118
Other assets 2,772,583 1,674,932 2,172,819
Premiums receivable - other lines 5,074,281 5,552,215 6,325,972
Total assets excluding separate accounts 16,882,899,586 16,423,696,574 16,010,972,052
From separate accounts 7,155,297 14,822,081 14,944,567
Total Admitted Assets $ 16,890,054,883 $ 16,438,518,655 $ 16,025,916,619

 

STATEMENT OF ADMITTED ASSETS, LIABILITIES AND SURPLUS
as of December 31, 2008, 2007 and 2006 (Continued)

  2008 2007 2006
Liabilities and Surplus:   (unexamined) (unexamined)
Aggregate reserve - life $ 927,278,289 $ 924,301,395 $ 910,979,541
Aggregate reserve - accident and health 8,675,625,741 8,428,037,674 8,169,064,438
Liability for deposit-type contracts 459,788,906 456,813,249 488,724,066
Contract claims 788,900,573 932,238,313 894,634,097
Policyholder Dividends 14,280,000 14,480,000 14,680,000
Premium Received in Advance 34,225,473 24,787,044 21,488,857
Provision for experience rating refunds 2,672,417 3,706,362 3,892,382
Other amounts payable on reinsurance 102,997,821 64,322,994 32,033,779
Interest maintenance reserve 30,629,465 47,350,582 53,560,301
Commissions to agents due or accrued 33,460.392 40,213,842 51,826,708
General expenses due or accrued 461,254 1,630,355 23,034,362
Taxes, licenses and fees 11,792,597 7,787,888 7,619,415
Current federal and foreign income taxes 36,559,021 - 4,125,555
Remittances and items not allocated 30,388,591 36,401,913 44,334,532
Borrowed Money arid Interest thereon 12,922,008 - -
Asset valuation reserve 131,190,019 131,845,941 102,299,763
Reinsurance in unauthorized companies 22,429,794 814,711 1,041,637
Reinsurance Funds Withheld 3,903,013,599 3,628,223,579 3,417,280,205
Payable to parent, subsidiaries and affiliates 51,494,037 61,035,646 80,900,576
Payable for securities 10,680,252 - -
Cash collateral on derivatives 117,752,990 - -
Derivative deferred gains* 55,480,850 - -
Collar, swap and forward contract obligations 9,971,946 63,886,903 32,514,863
Miscellaneous liabilities 65,653,404 65,315,270 76,792,912
Total liabilities excluding separate account 15,529,649,439 14,933,193,661 14,430,827,989
From Separate accounts statement 7,155,297 14,822,081 14,944,567
Total Liabilities 15,536,804,736 14,948,015,742 14,445,772,556
       
Common capital stock 5,000,000 5,000,000 5,000,000
Aggregate write-ins for (other than special surplus funds) 98,626,784 70,956,784 64,461,009
Gross paid in and contributed surplus 1,507,631,865 1,507,631,865 1,507,631,865
Aggregate write-ins (special surplus funds)   5,000,000 5,000,000
Unassigned funds (surplus) (258,008,502) (98,085,736) (1,948,811)
Total Capital & Surplus 1,353,250,147 1,490,502,913 1,580,144,063
Total Liabilities, Capital and Surplus $ 16,890,054,883 $ 16,438,518,655 $ 16,025,916,619

* Amount taken from annual statement in the year filed does not reflect subsequent reclassifications

 

STATEMENT OF OPERATIONS
Years Ended December 31, 2008, 2007, and 2006

  2008 2007 2006
Revenue   (unexamined) (unexamined)
Premiums $ 2,720,064,844 $ 2,786,558,349 $ 3,272,092,274
Supplementary Contracts With Life Contingencies 23,003 98,960 90,637
Net Investment Income 997,414,403 1,009,135,579 995,614,448
Amortization of Interest Maintenance Reserve 3,884,006 5,840,303 7,147,543
Ceded Reinsurance Commissions & Expense
253,452,026 195,779,010 130,098,279
Ceded Reinsurance Reserves Adjustments (261,097,667) (194,337,482) (169,939,147)
Fee Income 135,217 178,490 222,623
Aggregate Write-ins 71,503,763 65,456,276 63,660,528
Total Revenue 3,785,379,595 3,868,709,485 4,298,987,185
       
Benefits      
Death benefits 331,677,223 297,842,518 390,993,344
Matured endowments 351,229 416,826 295,212
Annuity benefits 21,681,939 23,267,867 24,486,324
Disability benefits 1,215,260,829 1,542,559,111 1,036,992,965
Surrender benefits 8,166,913 9,018,168 11,062,940
Group conversions (282,998) (298,440) (303,374)
Interest & Adjustments (deposit-type contracts) 11,944,274 31,596,915 12,782,548
Supplementary Contracts (life contingencies) 480,850 619,458 184,482
Change in Aggregate Reserves 249,715,507 241,898,533 1,485,670,864
Total Benefits 1,838,995,766 2,146,920,956 2,962,165,305
       
Expenses      
Commissions 299,710,857 301,278,425 307,958,231
Assumed Reinsurance Expense 27,316,784 21,316,870 18,286,744
General Insurance Expenses 650,371,902 606,089,744 637,626,946
Insurance Taxes, Licenses & Fees 94,669,987 96,296,638 96,995,218
Deferred & Uncollected Premium Loading 90,038 (35,223) (1,272,117)
Net Reinsurance Transfers (Separate Accounts) (2,308,991) (1,537,049) (2,505,429)
Aggregate write-ins for deductions 442,944,040 443,335,933 266,743,745
Total Expenses 1,512,794,617 1,466,745,338 1,323,833,338
       
Operating Income Before Dividends & Federal Taxes 433,589,209 255,043,189 12,988,544
Dividends to Policyholders 12,965,974 13,642,354 14,614,395
Operating Income After Dividends 420,623,235 241,400,835 (1,625,851)
Federal and Foreign Income Taxes Incurred 151,853,897 (7,962,833) (23,693,073)
Operating Income After Dividends & Federal Taxes 268,769,338 249,363,668 22,067,222
Net Realized Capital Gains/(Losses) (77,829,285) (54,368,204) (36,923,332)
Net income $ 190,940,053 $ 194,995,464 $ (14,856,110)

 

STATEMENT OF CAPITAL AND SURPLUS
Years Ended December 31, 2008, 2007, and 2006

  2008 2007 2006
    (unexamined) (unexamined)
Capital and surplus, beginning of year $ 1,490,502,912 $ 1,580,144,063 $ 1,354,600,463
Net income 190,940,053 194,995,464 (14,856,110)
Change in net unrealized capital gains (losses) (7,839,820) 34,472,873 (41,542,701)
Change in net unrealized foreign exchange capital gain (losses) 5,007,336 (3,727,747) (580,841)
Change in net deferred income tax 36,850,338 (60,558,593) 41,329,000
Change in nonadmitted assets and related items (23,243,120) 25,360,927 (33,149,266)
Change in liability for reinsurance in unauthorized companies (21,615,083) 226,926 409,819
Change in reserve on account of change in valuation basis - (8,426,419) (15,921,749)
Change in asset valuation reserve 655,922 (29,553,585) (3,417,620)
Surplus adjustment - paid in capital - - 300,000,000
Change in surplus as a result of reinsurance 27,670,000 6,495,775 (5,890,396)
Dividends to stockholders (365,000,000) (235,000,045) -
Aggregate write-ins for gains and losses in surplus 19,321,609 (13,926,727) (836,536)
Capital and surplus, end of year $ 1,353,250,147 $ 1,490,502,912 $ 1,580,144,063

 

COMMENTS ON FINANCIAL STATEMENT ITEMS

Bonds

The Company’s bond portfolio is valued in a manner prescribed by the NAIC. Bonds with an NAIC designation of 5 or less are carried at amortized cost and bonds with a designation of 6 are carried at lower of amortized cost or fair value.

The actual cost, par value, fair value and book/adjusted carrying value of bonds, presented by security type, at December 31, 2008 are described in the following table:

Security
Category
Actual
Cost
Par
Value
Fair
Value
Book/Adjusted
Carrying Value
Government Bonds $ 802,310,634 $ 2,435,159,438 $ 991,691,392 $ 944,365,162
U.S. States, Territories and Possessions Bonds 29,649,974 47,715,000 27,634,834 29,817,685
U.S. Political Subdivisions Bonds 5,905,181 16,670,000 5,796,826 5,998,122
U.S. Special Revenue 1,785,827,636 2,036,027,120 1,924,830,449 1,801,419,070
Industrial and Miscellaneous
(unaffiliated) Bonds
11,737,109,333 12,018,158,929 10,646,000,197 11,731,296,778
Credit Tenant Loans 78,503,594 77,763,489 79,927,681 78,563,144
Hybrid Securities - - - -
  $ 14,439,306,352 $ 16,631,493,976 $ 13,675,881,379 $ 14,591,459,961

Gross unrealized gains and gross unrealized losses, presented by security type, at December 31, 2008 are described in the following table:

Security
Category
Book/Adjusted
Carrying Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Government Bonds $ 944,365,162 $ 90,412,357 $ (43,086,127) $ 991,691,392
U.S. States, Territories and Possessions Bonds 29,817,685 - (2,182,851) 27,634,834
U.S. Political Subdivisions Bonds 5,998,122 - (201,296) 5,796,826
U.S. Special Revenue 1,801,419,070 127,445,854 (4,034,475) 1,924,830,449
Industrial and Miscellaneous
(unaffiliated) Bonds
11,731,296,778 290,759,762 (1,376,056,343) 10,646,000,197
Credit Tenant Loans 78,563,144 5,689,791 (4,325,254) 79,927,681
Hybrid Securities - - - -
  $ 14,591,459,961 $ 514,307,764 $ (1,429,886,346) $ 13,675,881,379

 

The actual cost, par value, fair value and book/adjusted carrying value of bonds, presented by NAIC quality distribution, at December 31, 2008 are described in the following table:

Quality Distribution
by NAIC
Designation
Actual
Cost
Par
Value
Fair
Value
Book/Adjusted
Carrying Value
NAIC Class 1 $ 7,468,010,214 $ 9,458,314,423 $ 7,664,427,673 $ 7,620,078,785
NAIC Class 2 5,737,612,685 5,881,369,108 5,109,493,314 5,745,970,497
NAIC Class 3 775,711,168 794,531,337 611,967,862 777,373,026
NAIC Class 4 365,149,119 376,295,155 255,611,752 365,415,097
NAIC Class 5 67,943,713 93,790,000 19,829,425 68,077,002
NAIC Class 6 24,879,453 27,193,953 14,551,353 14,545,554
  $ 14,439,306,352 $ 16,631,493,976 $ 13,675,881,379 $ 14,591,459,961

 

The actual cost, par value, fair value and book/adjusted carrying value of bonds, presented by maturity distribution, at December 31, 2008 are described in the following table. It should be noted that the maturity dates have not been adjusted for possible calls or prepayments.

Maturity
Distribution
Actual
Cost
Par
Value
Fair
Value
Book/Adjusted
Carrying Value
1 Year or less $ 101,669,674 $ 102,508,095 $ 103,385,236 $ 102,302,430
1 Year < 5 Years 2,171,091,733 2,186,516,687 1,954,765,025 2,170,751,385
5 Years < 10 Years 4,131,472,131 4,341,478,338 3,706,190,180 4,166,478,565
10 Years < 20 Years 2,806,359,728 2,893,834,540 2,641,317,389 2,810,892,586
20 Years < 5,228,713,086 7,107,156,316 5,270,223,549 5,341,034,995
  $ 14,439,306,352 $ 16,631,493,976 $ 13,675,881,379 $ 14,591,459,961

 

Reserves

Independent actuaries from Deloitte Consulting LLP were retained by the Maine Bureau of Insurance to perform a review and certain actuarial analyses of principally reserves, asset adequacy analysis testing and documentation of reinsurance agreements on a product line basis as of December 31, 2008. Deloitte Consulting LLP work is documented in the Statement of Actuarial Opinion Unum Life Insurance Company of America for the year 2008, dated April 28, 2010 and the Actuarial Examination of Unum Life Insurance Company of America as of December 31, 2008, dated March 9, 2010. Deloitte Consulting LLP found that “actuarial reserves and liabilities were generally found to be sufficient to meet future benefit obligations and to exceed statutory minimum standards in the aggregate”.

The following describes the net reserves, presented by product line, as reviewed by Deloitte Consulting LLP at December 31, 2008:

Product Exhibit 5 Exhibit 6 Exhibit 7 Exhibit 8 Total
Individual Disability   $ 2,273,601,000   $ 16,258,000 $ 2,289,859,000
Long Term Care*         -
Long Term Disability   6,371,724,000 13,456,000 513,077,000 6,898,257,000
Short Term Disability   18,251,000 418,000 22,881,000 41,550,000
Group Life 526,127,000   350,721,000 181,650,000 1,058,498,000
Individual Life 251,514,000   83,202,000 2,678,000 337,394,000
Group Annuities 149,558,000       149,558,000
Other Products 79,000 12,049,000 11,992,000 52,358,000 76,478,000
Total $ 927,278,000 $ 8,675,625,000 $ 459,789,000 $ 788,902,000 $ 10,851,594,000

 

*The aggregate reserves and liabilities reported for long term care insurance net to zero as of December 31, 2008. 98% of the long term care insurance reserves are ceded to an affiliate, UnumProvident International Limited of Bermuda (UPIL) and the remainder of the reserves are ceded to Employers Re, American Long Term Care and MedAmerica insurance Company. The UPIL reinsurance arrangment is on a funds withheld basis.

CONCLUSION

The Company’s financial condition, as disclosed by this examination, is reflected in statements and supporting exhibits contained in this report. The basis of preparation of such statements conforms to laws, rules and regulations prescribed and/or permitted by the Maine Bureau of Insurance.

Acknowledgment of cooperation and assistance extended to the examiners by all Company personnel is hereby expressed.

 

 

STATE OF MAINE
COUNTY OF KENNEBEC, SS

Stuart E. Turney, CFE, being duly sworn according to law deposes and says that, in accordance with authority vested in him by Mila Kofman, Superintendent of Insurance, pursuant to the Insurance Laws of the State of Maine, he has made an examination of the condition and affairs of the

Unum Life Insurance Company of America

of Portland, Maine as of December 31, 2008, and that the foregoing report of examination subscribed to by him is true to the best of his knowledge and belief. The following examiners from the Bureau of Insurance assisted:

Graham S. Payne
Michael R. Nadeau, CPA, CFE, CISA, AES
Margaret S. Boghosian, CPA, CFE
Jill C. Tobey, CPA, CFE
Debra L. Blaisdell
Arias Wan
Vanessa J. Leon

 

___________________________
Stuart E. Turney, CPA, AFE



Subscribed and sworn to before me
This 18 day of June, 2010


_______________________
Notary Public
My Commission Expires:



 

STATEMENT OF ACTUARIAL OPINION

Unum Life Insurance Company of America

December 31, 2008

I, Mark R. Yoest, a member of the American Academy of Actuaries, am associated with the firm of Deloitte Consulting LLP. Deloitte Consulting LLP has been engaged by the State of Maine Bureau of Insurance to render this opinion in connection with the examination of the Unum Life Insurance Company of America (“the Company”) as of December 31, 2008. I meet the Academy qualification standards for rendering this opinion and am familiar with the valuation requirements applicable to life and health insurance companies.

I have examined the actuarial assumptions and actuarial methods used in determining reserves and related actuarial items listed in the attached schedule, as shown in the annual statement of the Company, as prepared for filing with state regulatory officials, as of December 31, 2008.

In forming my opinion, I have relied upon the actuarial staff of the Company for information regarding reserve methodologies used as of December 31, 2008, and for listings and summaries of policies and contracts and other liabilities in force as of December 31, 2008. 1 also relied on asset adequacy information summarized in the Actuarial Memorandum supporting the December 31, 2008, Actuarial Opinion prepared by Albert A. Riggieri, Vice President and Appointed Actuary. In other respects my examination included a review of the actuarial assumptions and actuarial methods and such tests of the actuarial calculations as I considered necessary.

During the course of our examination of the Company, I determined that the Company’s held actuarial reserves and liabilities as of December 31, 2008, were sufficient to meet future benefit obligations and exceed statutory minimum standards in the aggregate.

In my opinion the exam adjusted amounts identified in the attached schedule:

  1. are computed in accordance with presently accepted actuarial standards consistently applied and are fairly stated, in accordance with sounds actuarial principles;
  2. are based on actuarial assumptions which produce reserves at least as great as those called for in any contract provision as to reserve basis and method, and are in accordance with all other contract provisions;
  3. meet the requirements of the insurance laws and regulations of the state of Maine and are at least as great as the minimum aggregate amounts required by the state of Maine;
  4. are computed on the basis of assumptions consistent with those used in computing the corresponding items in the annual statement of the preceding year-end; and
  5. include provision for all actuarial reserves and related statement items which ought to be established.

The reserves and related items, when considered in light of the assets held by the Company with respect to such reserves and actuarial items including, but not limited to, the investment earnings on the assets, and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the Company.

The actuarial methods, considerations and analyses used in forming my opinion conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which guidelines form the basis of this statement of opinion.

This statement of opinion was prepared for, and is only to be relied upon by, the State of Maine Bureau of Insurance.

 

_____________________________
Mark R. Yoest, FSA, MAAA
Senior Manager
Deloitte Consulting LLP
111 South Wacker
Chicago, IL 60606

(312) 486-3285


April 28, 2010
Date

 

Schedule

Unum Life Insurance Company of America
Policy Reserves and Other Actuarial Items
For the Year Ending December 31, 2008

 

Description As Reported
Aggregate Reserve for Life Contracts (Exhibit 5) $927,278,289
Aggregate Reserve for Accident and Health Contracts (Exhibit 6) $8,675,625,741
Liability for Deposit Type Contracts (Exhibit 7) $459,788,906
Policy and contract claims - Life (Exhibit 8) $184,328,020
Policy and contract claims - Health (Exhibit 8) $604,572,553

 

Last Updated: October 22, 2013