UNUM

How would you describe Unum's overall financial position today?

Rick: Our financial position is quite strong today and getting stronger. We continue to generate very good operating earnings and cash flow in each of our businesses. The capital backing our customers' policies is at its highest level ever, and our holding company capital is multiples of our annual needs. Underpinning this is the quality of our investment portfolio, which withstood the financial crisis well and is even better positioned today.

Clearly, Unum is in a strong position today with respect to excess capital. How do you determine what the "right" level of capital is? What are your plans, if any, for this capital?

Rick: Determining the right amount of capital is a dynamic process that starts with our own view of our risks and the capital we should hold to withstand severe market downturns. We then take into account the views of our multiple constituencies, including policyholders, regulators, rating agencies, and the capital markets. As for our plans, we look to take the excess capital we are generating and invest it in growth, both in our current businesses, as well as new opportunities. We will then return capital to our shareholders through dividends and by repurchasing our shares.

How would you rate the overall quality of Unum's investment portfolio?

Frank: In a nutshell, we believe our portfolio is strong. Its quality has held up very well despite the challenging environment, and our assets are generally well matched with liabilities. Additionally, our exposure to commercial real estate—an area of growing concern in the financial markets—is low

The recent credit cycle has had minimal impact on Unum's portfolio relative to other financial services providers. To what do you attribute this performance?

Frank: Our performance can be directly attributed to our overarching philosophy of investing in a way that helps the company keep its commitment to its customers. As part of this commitment, we are rigorous about creating an asset portfolio that matches the needs of our policyholder liabilities, and we're also extremely disciplined in our credit research.

Unum has performed well in this recession, particularly when compared to the 2001-2002 economic slowdown. What are the reasons for this improvement?

Rick: I think the company learned a lot from previous recessions. That is evident in our focus on risk management which, over the last several years, has been an important element of our strategy. As a result, we entered this recession a much stronger company with reduced credit risk in our investment portfolio, diversified business units, and a product portfolio disciplined in pricing and underwriting. It is also difficult to compare the impacts of two different cycles, as there are many variables, which is why a strong underpinning of risk management will continue to be our focus.

How has Unum been impacted most by the economic downturn?

Rick: We have seen impacts from the downturn, and it has been primarily to our top-line revenue growth. As you would see in the world at large, our customers haven’t been growing their workforces, salaries, or benefits. Therefore we have seen very little of what we would call “natural” growth in ongoing premiums. To counter that, we’ve had good success in attracting new accounts, which should bode well for us when the general employment picture improves.

The company has said it has significant financial flexibility. How important is this?

Rick: Having financial flexibility means having strategic flexibility, and it is a very valuable asset for us. It gives us many options when it comes to exploring ways to invest in what we have today and to grow the company for the future. As witnessed in the economic downturn, our financial flexibility afforded us the ability to capitalize on some of the dislocation in the market.

Do you expect to make significant changes to Unum's investment portfolio going forward? Do you see opportunities given the dislocations that have occurred in the financial markets?

Frank: Our philosophy has served us well, and, particularly since it's tied to a commitment to our customers, it isn't going to change. Likewise, we don't expect our portfolio to change in a significant way, though we will continue to see gradual adjustments over time.

We are in a position to take responsible investment risks, and, where our credit research indicates that there are good opportunities to create returns without undue risk, we will choose those places to put new funds to work. The markets will continue to be volatile, so we expect there to be opportunities to invest if we remain well- prepared and have the financial flexibility to respond as they arise.

Given Unum's performance over the last few years, are there opportunities for the company's ratings to be revised upward?

Rick: We see our position today as deserving of higher ratings. We were pleased that Fitch recognized this with an upgrade to our financial strength ratings, and that AM Best moved us to a positive outlook - particularly given the ongoing downgrades and negative outlooks for many insurance companies in this environment. We will continue to focus on executing our business plans, and ultimately we are not hindered by our current ratings in the marketplace. We sold $1 billion of new business in 2009 and issued $350 million of debt, so our many stakeholders already recognize our financial strength.