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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q
10-Q
(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2020
June 30, 2019

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Transition Report PursuantFor the transition period from to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ___________ to ___________

Commission file number 001-11294
1-11294
Unum Group
(Exact name of registrant as specified in its charter)
Delaware62-1598430
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1 Fountain Square
Chattanooga,
Tennessee37402
(Address of principal executive offices)(Zip code)Code)
(423) 294-1011
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
(
423)294-1011
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Trading SymbolName of each exchange on which registered
Common stock, $0.10 par valueUNMNew York Stock Exchange
6.250% Junior Subordinated Notes due 2058UNMANew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ [X] No [ ]
 ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
(Check one):
Large Accelerated FilerxAccelerated Filerfiler
Non-accelerated filerNon-accelerated Filer¨Smaller reporting company Smaller Reporting Company 
Emerging growth companyEmerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No


208,630,912203,420,459 shares of the registrant's common stock were outstanding as of July 29, 2019.May 1, 2020.









 TABLE OF CONTENTS

Page 
Page







Cautionary Statement Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the Act) provides a "safe harbor" to encourage companies to provide prospective information, as long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those included in the forward-looking statements. Certain information contained in this Quarterly Report on Form 10-Q (including certain statements in the consolidated financial statements and related notes and Management's Discussion and Analysis), or in any other written or oral statements made by us in communications with the financial community or contained in documents filed with the Securities and Exchange Commission (SEC), may be considered forward-looking statements within the meaning of the Act. Forward-looking statements are those not based on historical information, but rather relate to our outlook, future operations, strategies, financial results, or other developments. Forward-looking statements speak only as of the date made. We undertake no obligation to update these statements, even if made available on our website or otherwise. These statements may be made directly in this document or may be made part of this document by reference to other documents filed by us with the SEC, a practice which is known as "incorporation by reference." You can find many of these statements by looking for words such as "will," "may," "should," "could," "believes," "expects," "anticipates," "estimates," "plans," "assumes," "intends," "projects," "goals,” "objectives," or similar expressions in this document or in documents incorporated herein.

These forward-looking statements are subject to numerous assumptions, risks, and uncertainties, many of which are beyond our control. We caution readers that the following factors, in addition to other factors mentioned from time to time, may cause actual results to differ materially from those contemplated by the forward-looking statements:

The impact of the COVID-19 pandemic on our business, financial position, results of operations, liquidity and capital resources, and overall business operations.
Sustained periods of low interest rates.
Fluctuation in insurance reserve liabilities and claim payments due to changes in claim incidence, recovery rates, mortality and morbidity rates, and policy benefit offsets due to, among other factors, the rate of unemployment and consumer confidence, the emergence of new diseases, epidemics, or pandemics, new trends and developments in medical treatments, the effectiveness of our claims operational processes, and changes in governmental programs.offsets.
Unfavorable economic or business conditions, both domestic and foreign, that may result in decreases in sales, premiums, or persistency, as well as unfavorable claims activity.
Changes in, or interpretations or enforcement of, laws and regulations, including tax laws and regulations.
A cyber attack or other security breach could result in the unauthorized acquisition of confidential data.
The failure of our business recovery and incident management processes to resume our business operations in the event of a natural catastrophe, cyber attack, or other event.
Investment results, including, but not limited to, changes in interest rates, defaults, changes in credit spreads, impairments, and the lack of appropriate investments in the market which can be acquired to match our liabilities.
Increased competition from other insurers and financial services companies due to industry consolidation, new entrants to our markets, or other factors.
Changes in our financial strength and credit ratings.
Our ability to develop digital capabilities or execute on our technology systems upgrades or replacements.
Actual experience in the broad array of our products that deviates from our assumptions used in pricing, underwriting, and reserving.
Availability of reinsurance in the market and the ability of our reinsurers to meet their obligations to us.
Ability to generate sufficient internal liquidity and/or obtain external financing.
Damage to our reputation due to, among other factors, regulatory investigations, legal proceedings, external events, and/or inadequate or failed internal controls and procedures.
Actual experience in the broad array of our products that deviates from our assumptions used in pricing, underwriting, and reserving.
Changes in accounting standards, practices, or policies.
Effectiveness of our risk management program.
Contingencies and the level and results of litigation.
Availability of reinsurance in the market and the ability of our reinsurers to meet their obligations to us.
Ineffectiveness of our derivatives hedging programs due to changes in the economic environment, counterparty risk, ratings downgrades, capital market volatility, changes in interest rates, and/or regulation.
Fluctuation in foreign currency exchange rates.
Ability to generate sufficient internal liquidity and/or obtain external financing.
Recoverability and/or realization of the carrying value of our intangible assets, long-lived assets, and deferred tax assets.
Terrorism, both within the U.S. and abroad, ongoing military actions, and heightened security measures in response to these types of threats.


For further discussion of risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see Part 1, Item 1A of our annual report on Form 10-K for the year ended December 31, 2018.2019.

All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

1


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

Unum Group and Subsidiaries
March 31December 31
20202019
 (in millions of dollars)
(Unaudited)
Assets
Investments
Fixed Maturity Securities - at fair value (net of allowance for credit losses of $48.0; $—; amortized cost of $41,030.3; $41,079.3)$45,291.5  $47,443.7  
Mortgage Loans (net of allowance for credit losses of $11.1; $—)2,452.1  2,397.0  
Policy Loans3,743.5  3,779.5  
Other Long-term Investments917.5  844.2  
Short-term Investments1,384.4  1,294.5  
Total Investments53,789.0  55,758.9  
Other Assets
Cash and Bank Deposits337.2  84.1  
Accounts and Premiums Receivable (net of allowance for credit losses of $32.6; $10.3)1,639.6  1,602.9  
Reinsurance Recoverable (net of allowance for credit losses of $1.8; $—)4,666.2  4,780.7  
Accrued Investment Income748.5  693.0  
Deferred Acquisition Costs2,333.3  2,324.0  
Goodwill348.8  351.7  
Property and Equipment540.7  534.1  
Deferred Income Tax47.3  —  
Other Assets885.3  884.0  
Total Assets$65,335.9  $67,013.4  
See notes to consolidated financial statements.

 June 30 December 31
 2019 2018
 (in millions of dollars)
 (Unaudited)  
Assets   
    
Investments   
Fixed Maturity Securities - at fair value (amortized cost: $40,804.8; $40,275.2)$46,440.2
 $43,011.7
Mortgage Loans2,218.9
 2,295.0
Policy Loans3,633.1
 3,729.9
Other Long-term Investments735.0
 702.9
Short-term Investments1,367.2
 968.1
Total Investments54,394.4
 50,707.6
    
Other Assets   
Cash and Bank Deposits60.8
 94.0
Accounts and Premiums Receivable1,716.4
 1,615.5
Reinsurance Recoverable4,752.8
 4,662.4
Accrued Investment Income803.2
 690.6
Deferred Acquisition Costs2,301.9
 2,309.4
Goodwill350.1
 350.3
Property and Equipment556.1
 546.9
Deferred Income Tax
 109.9
Other Assets908.0
 789.0
    
Total Assets$65,843.7
 $61,875.6
2


CONSOLIDATED BALANCE SHEETS - Continued

Unum Group and Subsidiaries

March 31December 31
 20202019
 (in millions of dollars)
(Unaudited)
Liabilities and Stockholders' Equity
Liabilities
Policy and Contract Benefits$1,760.3  $1,745.5  
Reserves for Future Policy and Contract Benefits45,706.5  47,780.1  
Unearned Premiums414.1  363.9  
Other Policyholders’ Funds1,599.3  1,599.7  
Income Tax Payable268.9  256.7  
Deferred Income Tax93.7  95.4  
Short-term Debt399.8  399.7  
Long-term Debt2,914.3  2,926.9  
Payables for Collateral on Investments511.4  24.0  
Other Liabilities1,864.5  1,856.5  
Total Liabilities55,532.8  57,048.4  
Commitments and Contingent Liabilities - Note 11
Stockholders' Equity
Common Stock, $0.10 par
Authorized: 725,000,000 shares
Issued: 306,201,660 and 305,813,326 shares30.6  30.6  
Additional Paid-in Capital2,357.3  2,348.1  
Accumulated Other Comprehensive Income (Loss)(217.1) 37.3  
Retained Earnings10,812.0  10,728.7  
Treasury Stock - at cost: 102,876,514 shares(3,179.7) (3,179.7) 
Total Stockholders' Equity9,803.1  9,965.0  
Total Liabilities and Stockholders' Equity$65,335.9  $67,013.4  

See notes to consolidated financial statements.

3


CONSOLIDATED BALANCE SHEETS - ContinuedSTATEMENTS OF INCOME (UNAUDITED)

Unum Group and Subsidiaries

Three Months Ended March 31
 20202019
 (in millions of dollars, except share data)
Revenue
Premium Income$2,371.4  $2,338.7  
Net Investment Income585.0  594.7  
Net Realized Investment Gain (Loss)(144.0) 1.1  
Other Income58.7  53.1  
Total Revenue2,871.1  2,987.6  
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits1,854.8  1,840.8  
Commissions279.2  290.1  
Interest and Debt Expense45.7  42.1  
Deferral of Acquisition Costs(162.0) (173.7) 
Amortization of Deferred Acquisition Costs176.2  170.6  
Compensation Expense239.5  226.5  
Other Expenses235.6  237.9  
Total Benefits and Expenses2,669.0  2,634.3  
Income Before Income Tax202.1  353.3  
Income Tax Expense (Benefit)
Current57.6  54.3  
Deferred(16.5) 18.1  
Total Income Tax Expense41.1  72.4  
Net Income$161.0  $280.9  
Net Income Per Common Share
Basic$0.79  $1.31  
Assuming Dilution$0.79  $1.31  
 June 30 December 31
 2019 2018
 (in millions of dollars)
 (Unaudited)  
Liabilities and Stockholders' Equity   
    
Liabilities   
Policy and Contract Benefits$1,751.4
 $1,695.7
Reserves for Future Policy and Contract Benefits47,138.3
 44,841.9
Unearned Premiums448.3
 363.3
Other Policyholders’ Funds1,597.0
 1,594.8
Income Tax Payable250.2
 24.0
Deferred Income Tax37.0
 
Long-term Debt3,341.2
 2,971.3
Other Liabilities1,827.2
 1,762.8
    
Total Liabilities56,390.6
 53,253.8
    
Commitments and Contingent Liabilities - Note 11

 

    
Stockholders' Equity   
Common Stock, $0.10 par   
Authorized: 725,000,000 shares   
Issued: 305,715,150 and 305,104,548 shares30.6
 30.5
Additional Paid-in Capital2,335.6
 2,321.7
Accumulated Other Comprehensive Loss(242.5) (814.2)
Retained Earnings10,308.9
 9,863.1
Treasury Stock - at cost: 96,139,958 and 90,551,513 shares(2,979.5) (2,779.3)
    
Total Stockholders' Equity9,453.1
 8,621.8
    
Total Liabilities and Stockholders' Equity$65,843.7
 $61,875.6

See notes to consolidated financial statements.

4


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Unum Group and Subsidiaries

 Three Months Ended March 31
 20202019
 (in millions of dollars)
Net Income$161.0  $280.9  
Other Comprehensive Income (Loss)
Change in Net Unrealized Gain on Securities Before Adjustment (net of tax expense (benefit) of $(436.5); $326.8)(1,666.7) 1,245.1  
Change in Adjustment to Deferred Acquisition Costs and Reserves for Future Policy and Contract Benefits, Net of Reinsurance (net of tax expense (benefit) of $380.8; $(245.5))1,446.1  (932.8) 
Change in Net Gain on Hedges (net of tax expense (benefit) of $6.6; $(5.8))22.8  (20.5) 
Change in Foreign Currency Translation Adjustment (net of tax expense of $2.1; $0.3)(63.6) 17.3  
Change in Unrecognized Pension and Postretirement Benefit Costs (net of tax expense of $1.9; $0.7)7.0  2.8  
Total Other Comprehensive Income (Loss)(254.4) 311.9  
Comprehensive Income (Loss)$(93.4) $592.8  
 Three Months Ended June 30 Six Months Ended June 30
 2019 2018 2019 2018
 (in millions of dollars, except share data)
Revenue       
Premium Income$2,343.1
 $2,221.0
 $4,681.8
 $4,471.0
Net Investment Income624.9
 623.6
 1,219.6
 1,225.9
Realized Investment Loss       
Other-Than-Temporary Impairment Loss on Fixed Maturity Securities
 
 
 (1.0)
Net Realized Investment Loss, Excluding Other-Than-Temporary Impairment Loss on Fixed Maturity Securities(7.3) (2.6) (6.2) (3.8)
Net Realized Investment Loss(7.3) (2.6) (6.2) (4.8)
Other Income56.0
 48.3
 109.1
 97.8
Total Revenue3,016.7
 2,890.3
 6,004.3
 5,789.9
        
Benefits and Expenses       
Benefits and Change in Reserves for Future Benefits1,902.6
 1,804.1
 3,743.4
 3,612.0
Commissions284.4
 273.5
 574.5
 555.8
Interest and Debt Expense42.6
 42.4
 84.7
 82.6
Deferral of Acquisition Costs(170.3) (165.7) (344.0) (335.0)
Amortization of Deferred Acquisition Costs151.6
 140.2
 322.2
 291.7
Compensation Expense223.9
 220.2
 450.4
 441.9
Other Expenses229.9
 220.8
 467.8
 445.0
Total Benefits and Expenses2,664.7
 2,535.5
 5,299.0
 5,094.0
        
Income Before Income Tax352.0
 354.8
 705.3
 695.9
        
Income Tax Expense (Benefit)       
Current74.0
 80.6
 128.3
 170.0
Deferred(3.2) (11.3) 14.9
 (33.1)
Total Income Tax70.8
 69.3
 143.2
 136.9
        
Net Income$281.2
 $285.5
 $562.1
 $559.0
        
Net Income Per Common Share       
Basic$1.33
 $1.29
 $2.64
 $2.53
Assuming Dilution$1.33
 $1.29
 $2.64
 $2.52

See notes to consolidated financial statements.

5


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMESTOCKHOLDERS' EQUITY (UNAUDITED)

Unum Group and Subsidiaries
  
Three Months Ended March 31
 20202019
 (in millions of dollars)
Common Stock
Balance at Beginning of Year and End of Period$30.6  $30.5  
Additional Paid-in Capital
Balance at Beginning of Year2,348.1  2,321.7  
Common Stock Activity9.2  6.8  
Balance at End of Period2,357.3  2,328.5  
Accumulated Other Comprehensive Income (Loss)
Balance at Beginning of Year37.3  (814.2) 
Other Comprehensive Income (Loss)(254.4) 311.9  
Balance at End of Period(217.1) (502.3) 
Retained Earnings
Balance at Beginning of Year10,728.7  9,863.1  
Adjustment to Adopt Accounting Standard Update - Note 2(18.9) (3.4) 
Balance at Beginning of Year, as Adjusted10,709.8  9,859.7  
Net Income161.0  280.9  
Dividends to Stockholders (per common share: $0.285; $0.260)(58.8) (57.5) 
Balance at End of Period10,812.0  10,083.1  
Treasury Stock
Balance at Beginning of Year(3,179.7) (2,779.3) 
Purchases of Treasury Stock—  (100.0) 
Balance at End of Period(3,179.7) (2,879.3) 
Total Stockholders' Equity at End of Period$9,803.1  $9,060.5  
 Three Months Ended June 30 Six Months Ended June 30
 2019 2018 2019 2018
 (in millions of dollars)
Net Income$281.2
 $285.5
 $562.1
 $559.0
        
Other Comprehensive Income (Loss)       
Change in Net Unrealized Gain on Securities Before Adjustment (net of tax expense (benefit) of $279.3; $(169.5); $606.1; $(444.4))1,047.7
 (635.0) 2,292.8
 (1,677.1)
Change in Adjustment to Deferred Acquisition Costs and Reserves for Future Policy and Contract Benefits, Net of Reinsurance (net of tax expense (benefit) of $(201.2); $133.8; $(446.7); $345.9)(760.7) 503.4
 (1,693.5) 1,311.3
Change in Net Gain on Hedges (net of tax benefit of $2.8; $1.6; $8.6; $3.9)(12.1) (6.7) (32.6) (15.5)
Change in Foreign Currency Translation Adjustment (net of tax expense (benefit) of $0.1; $(0.3); $0.4; $(0.3))(19.7) (61.8) (2.4) (14.3)
Change in Unrecognized Pension and Postretirement Benefit Costs (net of tax expense of $1.3; $2.0; $2.0; $2.7)4.6
 6.3
 7.4
 9.4
Total Other Comprehensive Income (Loss)259.8
 (193.8) 571.7
 (386.2)
        
Comprehensive Income$541.0
 $91.7
 $1,133.8
 $172.8

See notes to consolidated financial statements.

6


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYCASH FLOWS (UNAUDITED)

Unum Group and Subsidiaries

 Three Months Ended March 31
 20202019
 (in millions of dollars)
Cash Flows from Operating Activities
Net Income$161.0  $280.9  
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Change in Receivables(8.7) (10.7) 
Change in Deferred Acquisition Costs14.2  (3.1) 
Change in Insurance Reserves and Liabilities67.5  90.7  
Change in Income Taxes24.9  253.1  
Change in Other Accrued Liabilities(121.3) (35.8) 
Non-cash Components of Net Investment Income(92.5) (95.6) 
Net Realized Investment (Gain) Loss144.0  (1.1) 
Depreciation28.5  27.4  
Other, Net2.3  11.0  
Net Cash Provided by Operating Activities219.9  516.8  
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturity Securities120.7  361.0  
Proceeds from Maturities of Fixed Maturity Securities414.3  369.6  
Proceeds from Sales and Maturities of Other Investments48.5  133.3  
Purchases of Fixed Maturity Securities(780.5) (822.0) 
Purchases of Other Investments(144.2) (53.2) 
Net Sales (Purchases) of Short-term Investments15.5  (217.9) 
Net Increase (Decrease) in Payables for Collateral on Investments487.4  (107.9) 
Net Purchases of Property and Equipment(39.1) (28.1) 
Net Cash Provided (Used) by Investing Activities122.6  (365.2) 
Cash Flows from Financing Activities
Long-term Debt Repayment(15.0) (15.0) 
Issuance of Common Stock1.3  1.4  
Repurchase of Common Stock—  (100.0) 
Dividends Paid to Stockholders(57.8) (55.7) 
Other, Net(17.9) (14.2) 
Net Cash Used by Financing Activities(89.4) (183.5) 
Net Increase (Decrease) in Cash and Bank Deposits253.1  (31.9) 
Cash and Bank Deposits at Beginning of Year84.1  94.0  
Cash and Bank Deposits at End of Period$337.2  $62.1  
 Three Months Ended June 30 Six Months Ended June 30
 2019 2018 2019 2018
 (in millions of dollars)
Common Stock       
Balance at Beginning of Period$30.5
 $30.5
 $30.5
 $30.5
Common Stock Activity0.1
 
 0.1
 
Balance at End of Period30.6
 30.5
 30.6
 30.5
        
Additional Paid-in Capital       
Balance at Beginning of Period2,328.5
 2,302.4
 2,321.7
 2,303.3
Common Stock Activity7.1
 6.2
 13.9
 5.3
Balance at End of Period2,335.6
 2,308.6
 2,335.6
 2,308.6
        
Accumulated Other Comprehensive Loss       
Balance at Beginning of Period(502.3) (82.4) (814.2) 127.5
Adjustment to Adopt Accounting Standard Update - Note 2
 
 
 (17.5)
Balance at Beginning of Period, as Adjusted(502.3) (82.4) (814.2) 110.0
Other Comprehensive Income (Loss)259.8
 (193.8) 571.7
 (386.2)
Balance at End of Period(242.5) (276.2) (242.5) (276.2)
        
Retained Earnings       
Balance at Beginning of Period10,083.1
 9,777.8
 9,863.1
 9,542.2
Adjustment to Adopt Accounting Standard Update - Note 2
 
 (3.4) 14.5
Balance at Beginning of Period, as Adjusted10,083.1
 9,777.8
 9,859.7
 9,556.7
Net Income281.2
 285.5
 562.1
 559.0
Dividends to Stockholders (per common share: $0.26; $0.23; $0.52; $0.46)(55.4) (50.9) (112.9) (103.3)
Balance at End of Period10,308.9
 10,012.4
 10,308.9
 10,012.4
        
Treasury Stock       
Balance at Beginning of Period(2,879.3) (2,528.8) (2,779.3) (2,428.6)
Purchases of Treasury Stock(100.2) (100.1) (200.2) (200.3)
Balance at End of Period(2,979.5) (2,628.9) (2,979.5) (2,628.9)
        
Total Stockholders' Equity at End of Period$9,453.1
 $9,446.4
 $9,453.1
 $9,446.4

See notes to consolidated financial statements.

7


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Unum Group and Subsidiaries
 Six Months Ended June 30
 2019 2018
 (in millions of dollars)
    
Cash Flows from Operating Activities   
Net Income$562.1
 $559.0
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities   
Change in Receivables57.2
 52.3
Change in Deferred Acquisition Costs(21.8) (43.3)
Change in Insurance Reserves and Liabilities243.6
 291.3
Change in Income Taxes236.7
 (5.5)
Change in Other Accrued Liabilities15.0
 (34.9)
Non-cash Components of Net Investment Income(231.4) (185.5)
Net Realized Investment Loss6.2
 4.8
Depreciation54.9
 49.5
Other, Net20.2
 8.5
Net Cash Provided by Operating Activities942.7
 696.2
    
Cash Flows from Investing Activities   
Proceeds from Sales of Fixed Maturity Securities606.9
 287.2
Proceeds from Maturities of Fixed Maturity Securities811.1
 1,523.6
Proceeds from Sales and Maturities of Other Investments187.1
 257.4
Purchases of Fixed Maturity Securities(1,906.1) (1,931.3)
Purchases of Other Investments(153.0) (308.9)
Net Purchases of Short-term Investments(388.3) (281.5)
Net Decrease in Payables for Collateral on Investments(100.0) (88.5)
Net Purchases of Property and Equipment(64.9) (59.6)
Net Cash Used by Investing Activities(1,007.2) (601.6)
    
Cash Flows from Financing Activities   
Issuance of Long-term Debt395.9
 290.7
Long-term Debt Repayments(30.0) (30.0)
Issuance of Common Stock3.5
 2.6
Repurchase of Common Stock(200.2) (205.8)
Dividends Paid to Stockholders(110.9) (103.3)
Other, Net(27.0) (26.7)
Net Cash Provided (Used) by Financing Activities31.3
 (72.5)
    
Net Increase (Decrease) in Cash and Bank Deposits(33.2) 22.1
    
Cash and Bank Deposits at Beginning of Year94.0
 77.4
    
Cash and Bank Deposits at End of Period$60.8
 $99.5

See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 1 - Basis of Presentation


The accompanying consolidated financial statements of Unum Group and its subsidiaries (the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form 10-K for the year ended December 31, 2018.2019.

In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of full year performance.performance, particularly when considering the risks and uncertainties associated with the coronavirus disease 2019 (COVID-19) and the impacts it may have on our financial position, results of operations, liquidity and capital resources, and overall business operations.

8



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 2 - Accounting Developments

Accounting Updates Adopted in 2019:2020:

Accounting Standards Codification (ASC)DescriptionDate of AdoptionEffect on Financial Statements
Accounting Standards Codification (ASC)ASC 350 "Intangibles - Goodwill and Other"DescriptionDate of AdoptionEffect on Financial Statements
ASC 220 "Income Statement - Reporting Comprehensive Income"This update allowedeliminated the requirement to calculate the implied fair value of goodwill (the second step in the current two-step test) to measure a goodwill impairment charge. Instead, entities to makeshould perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an accounting policy election to reclassifyimpairment charge for the disproportionate tax effects arising as a resultexcess of the recognitioncarrying amount over the fair value, with the loss not to exceed the total amount of the enactment of the tax bill, H.R.1, An Actgoodwill allocated to Provide Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, more commonly known as the Tax Cuts and Jobs Act (TCJA) from accumulated other comprehensive income to retained earnings. Tax effects that are disproportionate in accumulated other comprehensive income for reasons other than the TCJA may not be reclassified. This update required additional disclosures on whether an entity elects to reclassify the disproportionate tax effects and its policy for releasing tax effects from accumulated other comprehensive income.reporting unit. This guidance was applied in the period of adoption.January 1, 20192020The adoption of this update expanded certain of our disclosures but had no impact on our financial position or results of operations because we did not make the optional accounting policy election to reclassify the disproportionate tax effects resulting from the TCJA from accumulated other comprehensive income to retained earnings. We use an aggregate portfolio approach to release disproportionate tax effects when disposing of an entire business segment’s portfolio.
ASC 310 "Receivables - Nonrefundable Fees and Other Costs"This update shortened the amortization period to the earliest call date for certain callable debt securities held at a premium. This update did not impact securities held at a discount. The guidance was applied in the period of adoption.January 1, 2019The adoption of this update did not have a material impactan effect on our financial position or results of operations.
ASC 718 "Compensation - Stock Compensation"820 "Fair Value Measurement"This update generally alignedamended the accounting guidance for share-based payments issued to non-employees with guidance for share-based payments issued to employees. Specifically, the update required non-employee share-based payments to be measured using the grant date fair value measurement guidance by removing or clarifying certain existing disclosure requirements, while also adding new disclosure requirements. Specifically, this update removed certain disclosures related to Level 1 and Level 2 transfers and removed the discussion regarding valuation processes of Level 3 fair value measurements. The update modified guidance related to investments in certain entities that calculate net asset value to explicitly require disclosure regarding timing of liquidation of the equity instruments that an entity is obligated to issue wheninvestee's assets and timing of redemption restrictions. The update added disclosures around the good has been delivered orchanges in unrealized gains and losses in other comprehensive income for recurring Level 3 investments held at the service has been rendered rather than being remeasured through the performance completion date. Additionally, for non-employee share-based payments that contain performance conditions, the update changed the criteria regarding the recognition of compensation cost to when achievement of a performance condition is probable rather than upon actual achievementend of the performance condition.reporting period and adds disclosures regarding certain unobservable inputs on Level 3 fair value measurements. The guidance was applied inboth retrospectively and prospectively, depending on the periodspecific requirement of adoption.the update.December 31, 2018 for the removal and modification of certain disclosures and January 1, 20192020 for the addition of certain disclosures.The adoption of this update modified our disclosures but did not have an impact on our financial position or results of operations.
ASC 326 "Financial Instruments - Credit Losses"This update amended the guidance on the impairment of financial instruments. The update added an impairment model known as the current expected credit loss model that is based on expected losses rather than incurred losses and will generally result in earlier recognition of allowances for losses. The current expected credit loss model applies to financial instruments such as mortgage loans, fixed maturity securities classified as held-to-maturity, and certain receivables. The update also modified the other-than-temporary impairment model used for available-for-sale fixed maturity securities such that credit losses are recognized as an allowance rather than as a reduction in the amortized cost of the security. The reversal of previously recognized credit losses on available-for-sale fixed maturity securities is allowed under specified circumstances. Additional disclosures are also required, including information used to develop the allowance for losses. The guidance was applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. For available-for-sale fixed maturity securities, the update was applied prospectively. Other-than-temporary impairment losses recognized on available-for-sale fixed maturity securities prior to adoption of the update cannot be reversed. This guidance was applied in the period of adoption.January 1, 2020See the summary table below for the financial statement impacts of this adoption on our financial statement line items at January 1, 2020, as well as the required update to our significant accounting policies. In addition, see Note 4 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 for the additional disclosures required by the update.
9





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 2 - Accounting Developments - Continued
Summary of Financial Statement Impacts of Accounting Updates Adopted in 2020:

Balance at December 31, 2019Balance at
January 1, 2020
Effect of Change
(in millions of dollars)
Adjustments due to ASC 326
Consolidated Balance Sheets
Assets
Mortgage Loans$2,397.0  $2,388.7  $(8.3) 
Reinsurance Recoverable4,780.7  4,778.9  (1.8) 
Accounts and Premiums Receivable1,602.9  1,589.4  (13.5) 
Liabilities
Deferred Income Tax95.4  90.4  (5.0) 
Other Liabilities1,856.5  1,856.8  0.3  
Stockholders' Equity
Retained Earnings10,728.7  10,709.8  (18.9) 

In accordance with the January 1, 2020 implementation of updates to Accounting Standards Codification (ASC) 326 "Financial Instruments - Credit Losses", we have added the following discussion regarding our accounting policies on the allowance for current expected credit losses to our significant accounting policies.

Allowance for Current Expected Credit Losses: We establish an allowance for current expected credit losses on certain of our financial assets, which is deducted from the amortized cost of applicable investments and the gross amount of applicable receivables, to present the net amount we expect to collect on these financial assets. The allowance is forward-looking in nature and is calculated based on considerations regarding both historical events and future expectations. Periodic changes in the allowance are recorded through earnings.

The allowance on our premiums receivable is primarily determined using an aging analysis as well as historical lapse and delinquency rates by line of business, adjusted for key factors that may impact our future expectation of premium receipts such as changes in customer demographics, business practices, economic conditions, and product offerings. We write off premiums receivable amounts when determined to be uncollectable, which is based on various factors, including the aging of premiums receivable past the due date and specific communication with customers. At January 1, 2020 and March 31, 2020, the allowance for expected credit losses on premium receivables was $23.8 million and $32.6 million, respectively, on gross premium receivables of $543.0 million and $607.2 million, respectively. The allowance at January 1, 2020 includes amounts that were previously established at December 31, 2019. The increase in the allowance during the first quarter of 2020 was driven primarily by the uncertainty of collectability resulting from the impacts of COVID-19. The primary factors considered in establishing the additional allowance were the recent increase in unemployment levels and the general uncertainty around the financial condition of some of our customers. There was no significant write-off or recovery activity during the first quarter of 2020.

The allowance for our reinsurance recoverable balance is determined using a probability of default approach which incorporates key inputs and assumptions regarding historical insurer liquidation rates, counterparty credit ratings, and collateral received. Liquidation rates are derived from rating agency studies covering domestic insurers and are based on historical liquidation trends according to their respective credit ratings. When calculating our allowance, we apply these liquidation rates to the net amount of our credit exposure, which considers collateral arrangements such as letters of credit. We evaluate the factors used to determine our allowance on a quarterly basis to consider material changes in our assumptions and make adjustments accordingly. At both January 1, 2020 and March 31, 2020, the allowance for expected credit losses on reinsurance recoverables was $1.8 million.
10



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 2 - Accounting Developments - Continued
ASCDescriptionDate of AdoptionEffect on Financial Statements
ASC 842 "Leases"ThisSee Note 4 for discussion on the allowance for current expected credit losses regarding our commercial mortgage loans and the allowance for credit losses for our available-for-sale fixed maturity securities.

Summary of Financial Statement Impacts of Accounting Updates adopted in 2019:

Effective January 1, 2019, we adopted an update under ASC 842 that changed the accounting and disclosure requirements for leases, requiring lessees to report most leases on their balance sheets, regardless of whether the lease is classified as a finance lease or an operating lease. For lessees, the initial lease liability is equal to the present value of lease payments, and a corresponding asset, adjusted for certain items, is also recorded. Expense recognition for lessees remained similar to previous accounting requirements for capital and operating leases. For lessors, the guidance modified the classification criteria and the accounting for sales-type and direct financing leases. The guidance was applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings at the beginning of the period of adoption. In addition, the package of practical expedients available to leases that commenced prior to the date of adoption was applied.
January 1, 2019See the summary table below for the financial statement impacts of this modified retrospective adoption on our financial statement line items at January 1, 2019. In addition, see Note 12 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 for the additional disclosures required by the update.

Summary of Financial Statement Impacts of Accounting Updates Adopted in 2019:
 Balance at December 31, 2018 Balance at January 1, 2019 Effect of Change
 (in millions of dollars)
Adjustments due to ASC 842     
Consolidated Balance Sheets     
Assets     
Other Assets$789.0
 $906.7
 $117.7
Deferred Income Tax109.9
 109.5
 (0.4)
      
Liabilities     
Other Liabilities1,762.8
 1,884.8
 122.0
Income Tax Payable24.0
 22.7
 (1.3)
      
Stockholders' Equity     
Retained Earnings9,863.1
 9,859.7
 (3.4)


Summary of Financial Statement Impacts of Accounting Updates adopted in 2018:

Effective January 1, 2018, we adopted an update under ASC 825 that changed the accounting and disclosure requirements for certain financial instruments. These changes included a requirement to measure equity investments, other than those that resulted in consolidation or are accounted for under the equity method, at fair value through net income unless the investment qualifies for certain practicability exceptions. The guidance was applied using a modified retrospective approach through a cumulative-effect reduction to accumulated other comprehensive income of $17.5 million with a corresponding increase to retained earnings of $14.5$3.4 million a decreaseat the beginning of the period of adoption. In addition, the package of practical expedients available to other long-term investmentsleases that commenced prior to the date of $3.8 million, and a decrease to deferred income tax liability of $0.8 million.







NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 2 - Accounting Developments - Continued


adoption was applied.

Accounting Updates Outstanding:
ASCDescriptionDate of AdoptionEffect on Financial Statements
ASCDescriptionDate of AdoptionEffect on Financial Statements
ASC 326 "Financial Instruments - Credit Losses"This update amends the guidance on the impairment of financial instruments. The update adds an impairment model known as the current expected credit loss model that is based on expected losses rather than incurred losses and will generally result in earlier recognition of allowances for losses. The current expected credit loss model applies to financial instruments such as mortgage loans, fixed maturity securities classified as held-to-maturity, and certain receivables. The update also modifies the other-than-temporary impairment model used for available-for-sale fixed maturity securities such that credit losses are recognized as an allowance rather than as a reduction in the amortized cost of the security. The reversal of previously recognized credit losses on available-for-sale fixed maturity securities is allowed under specified circumstances. Additional disclosures will also be required, including information used to develop the allowance for losses. The guidance is to be applied to most instruments in scope using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. For available-for-sale fixed maturity securities, the update is applied prospectively. Other-than-temporary impairment losses recognized on available-for-sale fixed maturity securities prior to adoption of the update cannot be reversed. Early adoption is permitted.January 1, 2020We have determined that this guidance is primarily applicable to our mortgage loan investments and reinsurance recoverables. We are currently developing and implementing systems to support the expected credit loss projections for these asset types. We continue to evaluate the expected impact on our financial position, results of operations, and disclosures.
ASC 350 "Intangibles - Goodwill and Other"This update eliminates the requirement to calculate the implied fair value of goodwill (the second step in the current two-step test) to measure a goodwill impairment charge. Instead, entities should perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the excess of the carrying amount over the fair value, with the loss not to exceed the total amount of goodwill allocated to that reporting unit. The guidance is to be applied prospectively, with early adoption permitted for goodwill impairment tests performed on testing dates after January 1, 2017.January 1, 2020The adoption of this update will not have a material effect on our financial position or results of operations.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 2 - Accounting Developments - Continued

ASCDescriptionDate of AdoptionEffect on Financial Statements
ASC 820 "Fair Value Measurement"This update amended the fair value measurement guidance by removing or clarifying certain existing disclosure requirements, while also adding new disclosure requirements. Specifically, this update removed certain disclosures related to Level 1 and Level 2 transfers and also removed the discussion regarding valuation processes of Level 3 fair value measurements. The update modifies guidance related to investments in certain entities that calculate net asset value to explicitly require disclosure regarding timing of liquidation of the investee's assets and timing of redemption restrictions. The update adds disclosures around the changes in unrealized gains and losses in other comprehensive income for recurring Level 3 investments held at the end of the reporting period and adds disclosures regarding certain unobservable inputs on Level 3 fair value measurements. The guidance was applied retrospectively or prospectively depending on the specific requirement of the update. Entities are permitted to early adopt any removed or modified disclosures and may delay adoption of the additional disclosures until their effective date.December 31, 2018 for the removal and modification of certain disclosures and January 1, 2020 for the addition of certain disclosures.We elected to early adopt the removal and modification of disclosures, as permitted by the update. We have elected to delay the adoption of the additional disclosures until the effective date. The adoption of this update will modify our disclosures but will not have an impact on our financial position or results of operations.
ASC 715 "Compensation - Retirement Benefits"This update amends the defined benefit pension and other postretirement benefit guidance by removing or clarifying certain existing disclosure requirements, while also adding new disclosure requirements. Specifically, this update removes the requirement to disclose the effects of a one-percentage point change in the assumed healthcare cost trend and the requirement to disclose amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost of the next year. This update adds a requirement to describe the reasons for significant gains and losses related to changes in the benefit obligation for the period. The update also clarifies that the projected benefit obligation (PBO) and accumulated benefit obligation (ABO) and fair value of plan assets are to be disclosed for plans with PBOs or ABOs in excess of plan assets. The guidance is to be applied retrospectively and early adoption is permitted.December 31, 2020The adoption of this update will modify our disclosures but will not have an impact on our financial position or results of operations.
ASC 740 "Income Taxes"The amendments in this update simplify the accounting for income taxes by removing certain exceptions in the guidance related to the following: 1. losses in continuing operations when there is income in other items, 2. foreign subsidiaries becoming equity method investments and vice versa, and 3. year-to-date interim period losses exceeding anticipated loss for the year. The amendments also simplify the accounting for income taxes related to the following: 1. franchise taxes partially based on income, 2. step up in the tax basis of goodwill, 3. allocation of tax expense to entities not subject to tax, 4. enacted changes in tax law or rates in interim periods, and 5. employee stock ownership programs and investments in qualified affordable housing projects accounted for using the equity method.January 1, 2021We have not yet determined the expected impact on our disclosures.financial position or results of operations.

11



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 2 - Accounting Developments - Continued

ASCDescriptionDate of AdoptionEffect on Financial Statements
ASC 944 "Financial Services - Insurance"
This update significantly amends the accounting and disclosure requirements for long-duration insurance contracts. These changes include a requirement to review, and if necessary, update cash flow assumptions used to measure the liability for future policy benefits for traditional and limited-payment contracts at least annually, with changes recognized in earnings. In addition, an entity will be required to update the discount rate assumption at each reporting date using a yield that is reflective of an upper-medium grade fixed-income instrument, with changes recognized in other comprehensive income. These changes result in the elimination of the provision for risk of adverse deviation and premium deficiency (or loss recognition) testing. The update also requires that an entity measure all market risk benefits associated with deposit contracts at fair value, with changes recognized in earnings except for the portion attributable to a change in the instrument-specific credit risk, which is to be recognized in other comprehensive income. This update also simplifies the amortization of deferred acquisition costs by requiring amortization on a constant level basis over the expected term of the related contracts. Deferred acquisition costs are required to be written off for unexpected contract terminations but are no longer subject to an impairment test. Significant additional disclosures will also be required, which include disaggregated rollforwards of certain liability balances and the disclosure of qualitative and quantitative information about expected cash flows, estimates, and assumptions. The application of this guidance will vary based upon the specific requirements of the update but will generally result in either a modified retrospective or full retrospective approach with changes applied as of the beginning of the earliest period presented. Early adoption is permitted.


* In July 2019, the Financial Accounting Standards Board (FASB) voted to propose a one-year deferral of the effective date to
January 1, 2022. The FASB is expected to issue a final amendment later in 2019 regarding the proposed deferral date.2022January 1, 2021*We are currently evaluating the impact of the update and expect that the adoption may have a material impact on our financial position and results of operations. The update will also significantly expand our disclosures.
ASC 848 "Reference Rate Reform"The amendments in this update provide optional guidance, for a limited period of time, to ease the potential burden in accounting for and recognizing the effects of reference rate reform on financial reporting. The guidance allows for various practical expedients and exceptions when applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. Specifically, the guidance provides certain practical expedients for contract modifications, fair value hedges, and cash flow hedges and also provides certain exceptions related to changes in the critical terms of a hedging relationship. The guidance also allows for a one-time election to sell or transfer debt securities that were both classified as held-to-maturity prior to January 1, 2020 and reference a rate affected by the reform.Adoption is permitted as of the beginning of the interim period that includes March 12, 2020 (the issuance date of the update), or any date thereafter, through December 31, 2022, at which point the guidance will sunset.We have not yet determined the impact on our financial position or results of operations if we elect to adopt this guidance.


12






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 3 - Fair Values of Financial Instruments


Fair Value Measurements for Financial Instruments Carried at Fair Value

We report fixed maturity securities, which are classified as available-for-sale securities, derivative financial instruments, and unrestricted equity securities at fair value in our consolidated balance sheets. We report our investments in private equity partnerships at our share of the partnerships' net asset value per share or its equivalent (NAV) as a practical expedient for fair value.

The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and less judgment utilized in measuring fair value. An active market for a financial instrument is a market in which transactions for an asset or a similar asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair value and should be used to measure fair value whenever available. Conversely, financial instruments rarely traded or not quoted have less observability and are measured at fair value using valuation techniques that require more judgment. Pricing observability is generally impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction, and overall market conditions.

We classify financial instruments in accordance with a fair value hierarchy consisting of three levels based on the observability of valuation inputs:

Level 1 - the highest category of the fair value hierarchy classification wherein inputs are unadjusted and represent quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 - valued using inputs (other than prices included in Level 1) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life.

Level 3 - the lowest category of the fair value hierarchy and reflects the judgment of management regarding what market participants would use in pricing assets or liabilities at the measurement date. Financial assets and liabilities categorized as Level 3 are generally those that are valued using unobservable inputs to extrapolate an estimated fair value.

Valuation Methodologies of Financial Instruments Measured at Fair Value

Valuation techniques used for assets and liabilities accounted for at fair value are generally categorized into three types. The market approach uses prices and other relevant information from market transactions involving identical or comparable assets or liabilities. The income approach converts future amounts, such as cash flows or earnings, to a single present amount, or a discounted amount. The cost approach is based upon the amount that currently would be required to replace the service capacity of an asset, or the current replacement cost.

We use valuation techniques that are appropriate in the circumstances and for which sufficient data are available that can be obtained without undue cost and effort. In some cases, a single valuation technique will be appropriate (for example, when valuing an asset or liability using quoted prices in an active market for identical assets or liabilities). In other cases, multiple valuation techniques will be appropriate. If we use multiple valuation techniques to measure fair value, we evaluate and weigh the results, as appropriate, considering the reasonableness of the range indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances.

The selection of the valuation method(s) to apply considers the definition of an exit price and depends on the nature of the asset or liability being valued. For assets and liabilities accounted for at fair value, we generally use valuation techniques consistent with the market approach, and to a lesser extent, the income approach. We believe the market approach provides more observable data than the income approach, considering the type of investments we hold. Our fair value measurements could differ significantly based on the valuation technique and available inputs. When using a pricing service, we obtain the vendor's pricing documentation to ensure we understand their methodologies. We periodically review and approve the selection of our
13



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued


The selection of the valuation method(s) to apply considers the definition of an exit price and depends on the nature of the asset or liability being valued. For assets and liabilities accounted for at fair value, we generally use valuation techniques consistent with the market approach, and to a lesser extent, the income approach. We believe the market approach provides more observable data than the income approach, considering the type of investments we hold. Our fair value measurements could differ significantly based on the valuation technique and available inputs. When using a pricing service, we obtain the vendor's pricing documentation to ensure we understand their methodologies. We periodically review and approve the selection of our pricing vendors to ensure we are in agreement with their current methodologies. When markets are less active, brokers may rely more on models with inputs based on the information available only to the broker. Our internal investment management professionals, which include portfolio managers and analysts, monitor securities priced by brokers and evaluate their prices for reasonableness based on benchmarking to available primary and secondary market information. In weighing a broker quote as an input to fair value, we place less reliance on quotes that do not reflect the result of market transactions. We also consider the nature of the quote, particularly whether the quoteit is a binding offer.bid or market quote. If prices in an inactive market do not reflect current prices for the same or similar assets, adjustments may be necessary to arrive at fair value. When relevant market data is unavailable, which may be the case during periods of market uncertainty, the income approach can, in suitable circumstances, provide a more appropriate fair value. During 2019,2020, we have applied valuation approaches and techniques on a consistent basis to similar assets and liabilities and consistent with those approaches and techniques used at year end 2018.2019.

Fixed Maturity and Equity Securities

We use observable and unobservable inputs in measuring the fair value of our fixed maturity and equity securities. For securities categorized as Level 1, fair values equal active Trade Reporting and Compliance Engine (TRACE) pricing or unadjusted broker market maker prices. For securities categorized as Level 2 or Level 3, inputs that may be used in valuing each class of securities at any given time period are disclosed below. Actual inputs used to determine fair values will vary for each reporting period depending on the availability of inputs which may, at times, be affected by the lack of market liquidity.

Level 2Level 3
InstrumentObservable InputsUnobservable Inputs
United States Government and Government Agencies and Authorities
Valuation MethodPrincipally the market approachNot applicable
Valuation Techniques / InputsPrices obtained from external pricing services
States, Municipalities, and Political SubdivisionsLevel 2Level 3
InstrumentObservable InputsUnobservable Inputs
United States Government and Government Agencies and Authorities
Valuation MethodPrincipally the market approachNot applicablePrincipally the market approach
Valuation Techniques / InputsPrices obtained from external pricing services
States, Municipalities, and Political Subdivisions
Valuation MethodPrincipally the market approachPrincipally the market approach
Valuation Techniques / InputsPrices obtained from external pricing servicesAnalysis of similar bonds, adjusted for comparability
Relevant reports issued by analysts and rating agenciesNon-binding broker quotes
Audited financial statementsSecurity and issuer level spreads
Foreign Governments
Valuation MethodPrincipally the market approachPrincipally the market approach
Valuation Techniques / InputsPrices obtained from external pricing servicesAnalysis of similar bonds, adjusted for comparability
Non-binding broker quotesNon-binding broker quotes
Call provisionsSecurity and issuer level spreads
Public Utilities
Valuation MethodPrincipally the market and income approachesPrincipally the market and income approaches
Valuation Techniques / InputsPrices obtained from external pricing servicesChange in benchmark reference
14



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued


Level 2Level 3
InstrumentObservable InputsUnobservable Inputs
Public Utilities - Continued
Non-binding broker quotesAnalysis of similar bonds, adjusted for comparability
Benchmark yieldsDiscount for size - illiquidity
Transactional data for new issuances and secondary tradesVolatility of credit
Security cash flows and structuresLack of marketability
Recent issuance / supply
Audited financial statements
Security and issuer level spreads
Security creditor ratings/maturity/capital structure/optionality
Public covenants
Comparative bond analysis
Relevant reports issued by analysts and rating agencies
Mortgage/Asset-Backed SecuritiesLevel 2Level 3
InstrumentObservable InputsUnobservable Inputs
Public Utilities
Valuation MethodPrincipally the market and income approachesPrincipally the market and income approachesapproach
Valuation Techniques / InputsTRACE pricingChange in benchmark reference
Prices obtained from external pricing servicesAnalysis of similar bonds, adjusted for comparability
Non-binding broker quotesPrices obtained from external pricing services
Security cash flows and structures
Underlying collateral
Prepayment speeds/loan performance/delinquencies
Relevant reports issued by analysts and rating agencies
Audited financial statements
All Other Corporate Bonds
Valuation MethodPrincipally the market and income approachesPrincipally the market and income approaches
Valuation Techniques / InputsPrices obtained from external pricing servicesChange in benchmark reference
Non-binding broker quotesDiscount for size - illiquidity
Benchmark yieldsNon-binding broker quotesVolatility of credit
Transactional data for new issuances and secondary tradesLack of marketability
Security cash flows and structuresSecurity and issuer level spreads
Recent issuance / supplyVolatility of credit
Matrix pricingMatrix pricing
Security and issuer level spreads
Security creditor ratings/maturity/capital structure/optionality
Public covenants
Comparative bond analysis
Relevant reports issued by analysts and rating agencies
Audited financial statements
Mortgage/Asset-Backed Securities
Valuation MethodPrincipally the market and income approachesPrincipally the market approach
Valuation Techniques / InputsPrices obtained from external pricing servicesAnalysis of similar bonds, adjusted for comparability
Non-binding broker quotesRecent issuance / supplyNon-binding broker quotes
Security cash flows and structuresSecurity and issuer level spreads
Underlying collateralSecurity creditor ratings/maturity/capital structure/optionality
Prepayment speeds/loan performance/delinquencies
Relevant reports issued by analysts and rating agencies
Audited financial statements
All Other Corporate Bonds
Valuation MethodPrincipally the market and income approachesPrincipally the market and income approaches
Valuation Techniques / InputsTRACE pricingChange in benchmark reference
Prices obtained from external pricing servicesAnalysis of similar bonds, adjusted for comparability
Non-binding broker quotesDiscount for size - illiquidity
15



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued


Level 2Level 3
InstrumentObservable InputsUnobservable Inputs
All Other Corporate Bonds - Continued
Public covenants
Comparative bond analysis
Relevant reports issued by analysts and rating agencies
Audited financial statements
Redeemable Preferred StocksLevel 2Level 3
InstrumentValuation MethodObservable InputsPrincipally the market approachUnobservable InputsPrincipally the market approach
All Other Corporate Bonds - ContinuedValuation Techniques / Inputs
Benchmark yieldsNon-binding broker quotesFinancial statement analysis
Transactional data for new issuances and secondary tradesBenchmark yieldsLack of marketability
Security cash flows and structuresSecurity and issuer level spreads
Recent issuance / supplyVolatility of credit
Matrix pricingMatrix pricing
Security and issuer level spreads
Security creditor ratings/maturity/capital structure/optionality
Public covenants
Comparative bond analysis
Call provisions
Relevant reports issued by analysts and rating agencies
Audited financial statements
RedeemablePerpetual Preferred Stocksand Equity Securities
Valuation MethodPrincipally the market approachPrincipally the market approach
Valuation Techniques / InputsNon-binding broker quotesNon-binding broker quotes
Benchmark yields
Comparative bond analysis
Call provisions
Relevant reports issued by analysts and rating agencies
Audited financial statements
Equity Securities
Valuation MethodPrincipally the market approachPrincipally the market and income approaches
Valuation Techniques / InputsPrices obtained from external pricing servicesFinancial statement analysis
Non-binding broker quotesNon-binding broker quotes


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 3 - Fair Values of Financial Instruments - Continued


The management of our investment portfolio includes establishing pricing policy and reviewing the reasonableness of sources and inputs used in developing pricing. We review all prices obtained to ensure they are consistent withthat vary between multiple pricing vendors by a variety of observablethreshold that is outside a normal market inputs and to verifyrange for the validity of a security's price.asset type.  In the event we receive a vendor's market price that does not appear reasonable based on our market analysis, we may challenge the price and request further information about the assumptions and methodologies used by the vendor to price the security. We may change the vendor price based on a better data source such as an actual trade. We also review all price changesprices that did not change from the prior month which fall outside a predetermined corridor.to ensure that these prices are within our expectations. The overall valuation process for determining fair values may include adjustments to valuations obtained from our pricing sources when they do not represent a valid exit price. These adjustments may be made when, in our judgment and considering our knowledge of the financial conditions and industry in which the issuer operates, certain features of the financial instrument require that an adjustment be made to the value originally obtained from our pricing sources. These features may include the complexity of the financial instrument, the market in which the financial instrument is traded, counterparty credit risk, credit structure, concentration, or liquidity. Additionally, an adjustment to the price derived from a model typically reflects our judgment of the inputs that other participants in the market for the financial instrument being measured at fair value would consider in pricing that same financial instrument. In the event an asset is sold, we test the validity of the fair value determined by our valuation techniques by comparing the selling price to the fair value determined for the asset in the immediately preceding month end reporting period.
Certain of our investments do not have readily determinable market prices and/or observable inputs or may at times be affected by the lack of market liquidity. For these securities, we use internally prepared valuations, combining matrix pricing with vendor purchased software programs, including valuations based on estimates of future profitability, to estimate the fair value. Additionally, we may obtain prices from independent third-party brokers to aid in establishing valuations for certain of these securities. Key assumptions used by us to determine fair value for
16



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued
these securities include risk free interest rates, risk premiums, performance of underlying collateral (if any), and other factors involving significant assumptions which may or may not reflect those of an active market.

The parameters and inputs used to validate a price on a security may be adjusted for assumptions about risk and current market conditions on a quarter to quarter basis, as certain features may be more significant drivers of valuation at the time of pricing. Changes to inputs in valuations are not changes to valuation methodologies; rather, the inputs are modified to reflect direct or indirect impacts on asset classes from changes in market conditions.

At June 30, 2019, 23.6March 31, 2020, approximately 17.2 percent of our fixed maturity securities were valued using active trades from TRACE pricing or broker market maker prices for which there was current market activity in that specific security (comparable to receiving one binding quote).  The prices obtained were not adjusted, and the assets were classified as Level 1.

The remaining 76.482.8 percent of our fixed maturity securities were valued based on non-binding quotes or other observable and unobservable inputs, as discussed below:

63.169.4 percent of our fixed maturity securities were valued based on prices from pricing services that generally use observable inputs such as prices for securities or comparable securities in active markets in their valuation techniques. These assets were classified as Level 2. 

3.79.5 percent of our fixed maturity securities were valued based on one or more non-binding broker quotes, if validated by observable market data, or on TRACE prices for identical or similar assets absent current market activity.data. When only one price is available, it is used if observable inputs and analysis confirms that it is appropriate. These assets, for which we were able to validate the price using other observable market data, were classified as Level 2.

9.63.9 percent of our fixed maturity securities were valued based on prices of comparable securities, matrix pricing, market models, and/or internal models, or were valued based onpricing services or other non-binding quotes with no other observable market data. These assets were classified as either Level 2 or Level 3, with the categorization dependent on whether there was other observable market data.  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 3 - Fair Values of Financial Instruments - Continued


Derivatives

Fair values for derivatives other than embedded derivatives in modified coinsurance arrangements are based on market quotes or pricing models and represent the net amount of cash we would have paid or received if the contracts had been settled or closed as of the last day of the period. We analyze credit default swap spreads relative to the average credit spread embedded within the LIBOR-setting syndicate in determining the effect of credit risk on our derivatives' fair values.  If net counterparty credit risk for a derivative asset is determined to be material and is not adequately reflected in the LIBOR-based fair value obtained from our pricing sources, we adjust the valuations obtained from our pricing sources. For purposes of valuing net counterparty risk, we measure the fair value of a group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position or transfer a net short position for a particular risk exposure in an orderly transaction between market participants at the measurement date under current market conditions. In regard to our own credit risk component, we adjust the valuation of derivative liabilities wherein the counterparty is exposed to our credit risk when the LIBOR-based valuation of our derivatives obtained from pricing sources does not effectively include an adequate credit component for our own credit risk.
Fair values for our embedded derivative in a modified coinsurance arrangement are estimated using internal pricing models and represent the hypothetical value of the duration mismatch of assets and liabilities, interest rate risk, and third party credit risk embedded in the modified coinsurance arrangement.

We consider transactions in inactive markets to be less representative of fair value. We use all available observable inputs when measuring fair value, but when significant unobservable inputs are used, we classify these assets or liabilities as Level 3.

17



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued
Private Equity Partnerships

Our private equity partnerships represent funds that are primarily invested in private credit, private equity, and real assets, as described below. Distributions received from the funds arise from income generated by the underlying investments as well as the liquidation of the underlying investments. There is generally not a public market for these investments.

The following tables present additional information about our private equity partnerships, including commitments for additional investments which may or may not be funded:

  June 30, 2019
Investment Category Fair Value Redemption Term / Redemption Notice Unfunded Commitments
  (in millions of dollars)   (in millions of dollars)
Private Credit(a)$171.3
 Not redeemable $78.9
  35.6
 Initial 2 year lock on each new investment / Quarterly after 2 year lock with 90 days notice 1.9
Total Private Credit 206.9
   80.8
       
Private Equity(b)146.7
 Not redeemable 174.5
       
Real Assets(c)156.3
 Not redeemable 113.9
  30.4
 Quarterly / 90 days notice 
Total Real Assets 186.7
   113.9
       
Total Partnerships $540.3
   $369.2

March 31, 2020
Investment CategoryFair ValueRedemption Term / Redemption NoticeUnfunded Commitments
(in millions of dollars)(in millions of dollars)
Private Credit(a)$233.5  Not redeemable$141.6  
37.3  Initial 2 year lock on each new investment / Quarterly after 2 year lock with 90 days notice3.0  
Total Private Credit270.8  144.6  
Private Equity(b)168.0  Not redeemable209.2  
Real Assets(c)168.9  Not redeemable145.2  
30.4  Quarterly / 90 days notice25.0  
Total Real Assets199.3  170.2  
Total Partnerships$638.1  $524.0  


December 31, 2019
Investment CategoryFair ValueRedemption Term / Redemption NoticeUnfunded Commitments
(in millions of dollars)(in millions of dollars)
Private Credit(a)$223.6  Not redeemable$152.6  
39.6  Initial 2 year lock on each new investment / Quarterly after 2 year lock with 90 days notice0.1  
Total Private Credit263.2  152.7  
Private Equity(b)149.3  Not redeemable166.8  
Real Assets(c)173.8  Not redeemable130.6  
30.4  Quarterly / 90 days notice25.0  
Total Real Assets204.2  155.6  
Total Partnerships$616.7  $475.1  

18



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued

(a)Private Credit - The limited partnerships described in this category employ various investment strategies, generally providing direct lending or other forms of debt financing including first-lien, second-lien, mezzanine, and subordinated loans. The limited partnerships have credit exposure to corporates, physical assets, and/or financial assets within a variety of industries (including manufacturing, healthcare, energy, business services, technology, materials, and retail) in North America and, to a lesser extent, outside of North America.  As of March 31, 2020, the estimated remaining life of the investments that do not allow for redemptions is approximately 41 percent in the next 3 years, 23 percent during the period from 3 to 5 years, 34 percent during the period from 5 to 10 years, and 2 percent during the period from 10 to 15 years.

(b)Private Equity - The limited partnerships described in this category employ various strategies generally investing in controlling or minority control equity positions directly in companies and/or assets across various industries (including manufacturing, healthcare, energy, business services, technology, materials, and retail), primarily in private markets within North America and, to a lesser extent, outside of North America.  As of March 31, 2020, the estimated remaining life of the investments that do not allow for redemptions is approximately 31 percent in the next 3 years, 23 percent during the period from 3 to 5 years, 44 percent during the period from 5 to 10 years, and 2 percent during the period from 10 to 15 years.

(c)Real Assets - The limited partnerships described in this category employ various strategies, which include investing in the equity and/or debt financing of physical assets, including infrastructure (energy, power, water/wastewater, communications), transportation (including airports, ports, toll roads, aircraft, railcars) and real estate in North America, Europe, South America, and Asia.  As of March 31, 2020, the estimated remaining life of the investments that do not allow for redemptions is approximately 1 percent in the next 3 years, 14 percent during period from 3 to 5 years and 85 percent during the period from 5 to 10 years.

We record changes in our share of net asset value of the partnerships in net investment income. We receive financial information related to our investments in partnerships generally on a one-quarter lag in accordance with our accounting policy. We estimate that we will recognize losses totaling approximately $30 million to $50 million, or approximately 5 to 8 percent of the carrying value of our portfolio, in the second quarter of 2020 as we receive financial statements from the partnerships for the first quarter of 2020 that will reflect the impact of current economic conditions. During the first quarter of 2020, U.S. equity markets were severely depressed as a result of COVID-19 and although our partnership investments are not directly correlated with those markets, their results were impacted.
19

  December 31, 2018
Investment Category Fair Value Redemption Term / Redemption Notice Unfunded Commitments
  (in millions of dollars)   (in millions of dollars)
Private Credit(a)$168.6
 Not redeemable $99.5
  25.7
 Initial 2 year lock on each new investment / Quarterly after 2 year lock with 90 days notice 10.3
Total Private Credit 194.3
   109.8
       
Private Equity(b)128.3
 Not redeemable 169.5
       
Real Assets(c)131.0
 Not redeemable 106.0
  30.2
 Quarterly / 90 days notice 
Total Real Assets 161.2
   106.0
       
Total Partnerships $483.8
   $385.3


(a)
Private Credit - The limited partnerships described in this category employ various investment strategies, generally providing direct lending or other forms of debt financing including first-lien, second-lien, mezzanine, and subordinated loans. The limited partnerships have credit exposure to corporates, physical assets, and/or financial assets within a variety of industries (including manufacturing, healthcare, energy, business services, technology, materials, and retail) in North America and, to a lesser extent, outside of North America.  Unless specifically disclosed in the table above, these limited partnerships do not allow for redemptions. As of June 30, 2019, the estimated remaining life of the investments that do not allow for redemptions is approximately 43 percent in the next 3 years, 28 percent during the period from 3 to 5 years, 26 percent during the period from 5 to 10 years, and 3 percent during the period from 10 to 15 years.

(b)
Private Equity - The limited partnerships described in this category employ various strategies generally investing in controlling or minority control equity positions directly in companies and/or assets across various industries (including manufacturing, healthcare, energy, business services, technology, materials, and retail), primarily in private markets within North America and, to a lesser extent, outside of North America.  Unless specifically disclosed in the table above, these limited partnerships do not allow for redemptions. As of June 30, 2019, the estimated remaining life of the investments that do not allow for redemptions is approximately 38 percent in the next 3 years, 60 percent during the period from 5 to 10 years, and 2 percent during the period from 10 to 15 years.

(c)
Real Assets - The limited partnerships described in this category employ various strategies, which include investing in the equity and/or debt financing of physical assets, including infrastructure (energy, power, water/wastewater, communications), transportation (including airports, ports, toll roads, aircraft, railcars) and real estate in North America, Europe, South America, and Asia.  Unless specifically disclosed in the table above, these limited partnerships do not allow for redemptions. As of June 30, 2019, the estimated remaining life of the investments that do not allow for redemptions is approximately 1 percent in the next 3 years, 16 percent during period from 3 to 5 years, 76 percent during the period from 5 to 10 years, and 7 percent during the period from 10 to 15 years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued


The following tables present information about assets and liabilitiesfinancial instruments measured at fair value on a recurring basis by fair value level, based on the observability of the inputs used:

June 30, 2019 March 31, 2020
Level 1 Level 2 Level 3 NAV Total Level 1Level 2Level 3NAVTotal
(in millions of dollars)(in millions of dollars)
Assets         Assets
Fixed Maturity Securities         Fixed Maturity Securities
United States Government and Government Agencies and Authorities$716.1
 $1,170.1
 $
 $
 $1,886.2
United States Government and Government Agencies and Authorities$109.7  $1,273.0  $—  $—  $1,382.7  
States, Municipalities, and Political Subdivisions
 2,708.0
 
 
 2,708.0
States, Municipalities, and Political Subdivisions—  3,616.1  31.3  —  3,647.4  
Foreign Governments
 972.8
 31.9
 
 1,004.7
Foreign Governments—  937.4  20.9  —  958.3  
Public Utilities780.9
 6,643.7
 189.1
 
 7,613.7
Public Utilities311.7  7,212.9  26.3  —  7,550.9  
Mortgage/Asset-Backed Securities
 1,566.4
 
 
 1,566.4
Mortgage/Asset-Backed Securities—  1,370.6  75.1  —  1,445.7  
All Other Corporate Bonds9,437.2
 21,169.9
 1,014.1
 
 31,621.2
All Other Corporate Bonds7,391.2  22,319.9  553.0  —  30,264.1  
Redeemable Preferred Stocks20.7
 19.3
 
 
 40.0
Redeemable Preferred Stocks—  42.4  —  —  42.4  
Total Fixed Maturity Securities10,954.9
 34,250.2
 1,235.1
 
 46,440.2
Total Fixed Maturity Securities7,812.6  36,772.3  706.6  —  45,291.5  
         
Other Long-term Investments         Other Long-term Investments
Derivatives         Derivatives
Interest Rate SwapsInterest Rate Swaps—  0.9  —  —  0.9  
ForwardsForwards—  0.4  —  —  0.4  
Foreign Exchange Contracts
 27.4
 
 
 27.4
Foreign Exchange Contracts—  85.3  —  —  85.3  
Equity Securities
 27.6
 4.6
 
 32.2
Credit Default Swaps Credit Default Swaps—  1.3  —  —  1.3  
Total DerivativesTotal Derivatives—  87.9  —  —  87.9  
Perpetual Preferred and Equity SecuritiesPerpetual Preferred and Equity Securities4.7  5.6  4.6  —  14.9  
Private Equity Partnerships
 
 
 540.3
 540.3
Private Equity Partnerships—  —  —  638.1  638.1  
Total Other Long-term Investments
 55.0
 4.6
 540.3
 599.9
Total Other Long-term Investments4.7  93.5  4.6  638.1  740.9  
Total Financial Instrument Assets Carried at Fair Value$10,954.9
 $34,305.2
 $1,239.7
 $540.3
 $47,040.1
Total Financial Instrument Assets Carried at Fair Value$7,817.3  $36,865.8  $711.2  $638.1  $46,032.4  
         
Liabilities         Liabilities
Other Liabilities         Other Liabilities
Derivatives         Derivatives
Interest Rate Swaps and Forwards$
 $1.6
 $
 $
 $1.6
Foreign Exchange Contracts
 34.6
 
 
 34.6
Foreign Exchange Contracts$—  $32.6  $—  $—  $32.6  
Embedded Derivative in Modified Coinsurance Arrangement
 
 26.4
 
 26.4
Embedded Derivative in Modified Coinsurance Arrangement—  —  109.7  —  109.7  
Total Derivatives
 36.2
 26.4
 
 62.6
Total Derivatives—  32.6  109.7  —  142.3  
Total Financial Instrument Liabilities Carried at Fair Value$
 $36.2
 $26.4
 $
 $62.6
Total Financial Instrument Liabilities Carried at Fair Value$—  $32.6  $109.7  $—  $142.3  


20



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued


 December 31, 2019
 Level 1Level 2Level 3NAVTotal
(in millions of dollars)
Assets
Fixed Maturity Securities
United States Government and Government Agencies and Authorities$412.8  $988.9  $—  $—  $1,401.7  
States, Municipalities, and Political Subdivisions—  3,321.6  41.8  —  3,363.4  
Foreign Governments—  995.9  21.8  —  1,017.7  
Public Utilities171.1  7,546.5  14.6  —  7,732.2  
Mortgage/Asset-Backed Securities—  1,444.6  34.1  —  1,478.7  
All Other Corporate Bonds4,114.4  27,695.5  600.5  —  32,410.4  
Redeemable Preferred Stocks—  39.6  —  —  39.6  
Total Fixed Maturity Securities4,698.3  42,032.6  712.8  —  47,443.7  
Other Long-term Investments
Derivatives
Foreign Exchange Contracts—  27.0  —  —  27.0  
Credit Default Swaps—  0.5  —  —  0.5  
Total Derivatives—  27.5  —  —  27.5  
Perpetual Preferred and Equity Securities—  28.0  4.6  —  32.6  
Private Equity Partnerships—  —  —  616.7  616.7  
Total Other Long-term Investments—  55.5  4.6  616.7  676.8  
Total Financial Instrument Assets Carried at Fair Value$4,698.3  $42,088.1  $717.4  $616.7  $48,120.5  
Liabilities
Other Liabilities
Derivatives
Interest Rate Swaps$—  $0.6  $—  $—  $0.6  
Foreign Exchange Contracts—  34.0  —  —  34.0  
Embedded Derivative in Modified Coinsurance Arrangement—  —  22.8  —  22.8  
Total Derivatives—  34.6  22.8  —  57.4  
Total Financial Instrument Liabilities Carried at Fair Value$—  $34.6  $22.8  $—  $57.4  
 December 31, 2018
 Level 1 Level 2 Level 3 NAV Total
 (in millions of dollars)
Assets         
Fixed Maturity Securities         
United States Government and Government Agencies and Authorities$513.4
 $1,301.0
 $
 $
 $1,814.4
States, Municipalities, and Political Subdivisions
 2,424.2
 
 
 2,424.2
Foreign Governments
 952.3
 31.4
 
 983.7
Public Utilities286.4
 7,041.7
 84.7
 
 7,412.8
Mortgage/Asset-Backed Securities
 1,582.7
 
 
 1,582.7
All Other Corporate Bonds4,232.1
 23,026.1
 1,495.8
 
 28,754.0
Redeemable Preferred Stocks
 18.8
 21.1
 
 39.9
Total Fixed Maturity Securities5,031.9
 36,346.8
 1,633.0
 
 43,011.7
          
Other Long-term Investments         
Derivatives         
Foreign Exchange Contracts
 30.4
 
 
 30.4
 Credit Default Swaps
 0.5
 
 
 0.5
 Total Derivatives
 30.9
 
 
 30.9
Equity Securities
 24.6
 4.6
 
 29.2
Private Equity Partnerships
 
 
 483.8
 483.8
Total Other Long-term Investments
 55.5
 4.6
 483.8
 543.9
Total Financial Instrument Assets Carried at Fair Value$5,031.9
 $36,402.3
 $1,637.6
 $483.8
 $43,555.6
          
Liabilities         
Other Liabilities         
Derivatives         
Interest Rate Swaps$
 $5.2
 $
 $
 $5.2
Foreign Exchange Contracts
 32.8
 
 
 32.8
Embedded Derivative in Modified Coinsurance Arrangement
 
 31.1
 
 31.1
Total Derivatives
 38.0
 31.1
 
 69.1
Total Financial Instrument Liabilities Carried at Fair Value$
 $38.0
 $31.1
 $
 $69.1


21



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued


Changes in assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows:

Three Months Ended March 31, 2020
Three Months Ended June 30, 2019  Total Realized
and Unrealized
Investment Gains (Losses) in
  Level 3 Transfers Change in Unrealized Gain (Loss) on Securities Held at the End of Period included in OCI
  
Total Realized and
Unrealized Investment
Gains (Losses) Included in
     Level 3 Transfers   Fair Value Beginning
of Year
EarningsOCI (1)PurchasesSalesIntoOut ofFair Value End of
Period
Change in Unrealized Gain (Loss) on Securities Held at the End of Period included in OCI
Fair Value Beginning
of Period
 Earnings 
Other
Comprehensive
Income or Loss
 Purchases Sales Into Out of 
Fair Value End of
Period
Change in Unrealized Gain (Loss) on Securities Held at the End of Period included in OCI
(in millions of dollars)(in millions of dollars)
Fixed Maturity Securities               Fixed Maturity Securities
States, Municipalities, and Political SubdivisionsStates, Municipalities, and Political Subdivisions$41.8  $—  $2.8  $—  $—  $—  $(13.3) $31.3  $2.9  
Foreign Governments$31.6
 $
 $0.3
 $
 $
 $
 $
 $31.9
Foreign Governments21.8  —  (0.9) —  —  —  —  20.9  (0.9) 
Public Utilities224.0
 
 (2.0) 
 
 80.3
 (113.2) 189.1
Public Utilities14.6  —  (0.3) —  —  18.0  (6.0) 26.3  —  
Mortgage/Asset-Backed SecuritiesMortgage/Asset-Backed Securities34.1  —  (0.8) —  —  49.2  (7.4) 75.1  (0.2) 
All Other Corporate Bonds496.0
 
 16.0
 
 (9.7) 595.8
 (84.0) 1,014.1
All Other Corporate Bonds600.5  —  (50.6) 20.9  —  236.2  (254.0) 553.0  (2.2) 
Redeemable Preferred Stocks21.0
 
 
 
 
 
 (21.0) 
Total Fixed Maturity Securities772.6
 
 14.3
 
 (9.7) 676.1
 (218.2) 1,235.1
Total Fixed Maturity Securities712.8  —  (49.8) 20.9  —  303.4  (280.7) 706.6  (0.4) 
               
Equity Securities4.6
 
 
 
 
 
 
 4.6
Equity Securities4.6  —  —  —  —  —  —  4.6  
Embedded Derivative in Modified Coinsurance Arrangement(25.6) (0.8) 
 
 
 
 
 (26.4)Embedded Derivative in Modified Coinsurance Arrangement(22.8) (86.9) —  —  —  —  —  (109.7) 

(1) Other Comprehensive Income (Loss)
22



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued


 Three Months Ended June 30, 2018
   
Total Realized and
Unrealized Investment
Gains (Losses) Included in
     Level 3 Transfers  
 
Fair Value Beginning
of Period
 Earnings 
Other
Comprehensive
Income or Loss
 Purchases Sales Into Out of 
Fair Value End of
Period
 (in millions of dollars)
Fixed Maturity Securities               
States, Municipalities, and Political Subdivisions$35.7
 $
 $0.8
 $
 $
 $
 $
 $36.5
Foreign Governments32.3
 
 (0.8) 
 
 
 
 31.5
Public Utilities284.2
 
 (0.8) 
 
 49.4
 (163.6) 169.2
Mortgage/Asset-Backed Securities0.5
 
 
 
 
 
 
 0.5
All Other Corporate Bonds987.2
 1.9
 (16.1) 9.9
 (37.5) 409.3
 (538.4) 816.3
Redeemable Preferred Stocks22.2
 
 (0.6) 
 
 
 
 21.6
Total Fixed Maturity Securities1,362.1
 1.9
 (17.5) 9.9
 (37.5) 458.7
 (702.0) 1,075.6
                
Equity Securities1.1
 
 
 
 
 
 
 1.1
Embedded Derivative in Modified Coinsurance Arrangement(17.6) (2.3) 
 
 
 
 
 (19.9)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 3 - Fair Values of Financial Instruments - Continued


 Six Months Ended June 30, 2019
   Total Realized and
Unrealized Investment
Gains (Losses) Included in
     Level 3 Transfers  
 Fair Value Beginning
of Year
 Earnings Other
Comprehensive
Income or Loss
 Purchases Sales Into Out of Fair Value End of
Period
 (in millions of dollars)
Fixed Maturity Securities               
Foreign Governments$31.4
 $
 $0.5
 $
 $
 $
 $
 $31.9
Public Utilities84.7
 
 7.2
 
 (0.2) 151.8
 (54.4) 189.1
All Other Corporate Bonds1,495.8
 
 61.8
 14.0
 (60.5) 405.5
 (902.5) 1,014.1
Redeemable Preferred Stocks21.1
 
 
 
 
 
 (21.1) 
Total Fixed Maturity Securities1,633.0
 
 69.5
 14.0
 (60.7) 557.3
 (978.0) 1,235.1
                
Equity Securities4.6
 
 
 
 
 
 
 4.6
Embedded Derivative in Modified Coinsurance Arrangement(31.1) 4.7
 
 
 
 
 
 (26.4)
 
 Six Months Ended June 30, 2018
   Total Realized and
Unrealized Investment
Gains (Losses) Included in
     Level 3 Transfers  
 Fair Value Beginning
of Year
 Earnings Other
Comprehensive
Income or Loss
 Purchases Sales Into Out of Fair Value End of
Period
 (in millions of dollars)
Fixed Maturity Securities               
States, Municipalities, and Political Subdivisions$
 $
 $
 $
 $(0.1) $36.6
 $
 $36.5
Foreign Governments
 
 (1.3) 
 
 32.8
 
 31.5
Public Utilities207.7
 
 (3.6) 
 
 81.7
 (116.6) 169.2
Mortgage/Asset-Backed Securities
 
 
 
 
 0.5
 
 0.5
All Other Corporate Bonds1,150.1
 1.8
 (35.4) 26.0
 (71.3) 415.2
 (670.1) 816.3
Redeemable Preferred Stocks22.8
 
 (1.2) 
 
 
 
 21.6
Total Fixed Maturity Securities1,380.6
 1.8
 (41.5) 26.0
 (71.4) 566.8
 (786.7) 1,075.6
                
Equity Securities1.1
 
 
 
 
 
 
 1.1
Embedded Derivative in Modified Coinsurance Arrangement(15.9) (4.0) 
 
 
 
 
 (19.9)


 Three Months Ended March 31, 2019
  Total Realized and Unrealized Investment Gains (Losses) in  Level 3 Transfers 
 Fair Value Beginning
of Year
EarningsOCIPurchasesSalesFair Value End of
Period
 IntoOut of
(in millions of dollars)
Fixed Maturity Securities
Foreign Governments$31.4  $—  $0.2  $—  $—  $—  $—  $31.6  
Public Utilities84.7  —  7.9  —  (0.4) 208.6  (76.8) 224.0  
All Other Corporate Bonds1,495.8  —  13.3  —  (29.4) 36.1  (1,019.8) 496.0  
Redeemable Preferred Stocks21.1  —  (0.1) —  —  —  —  21.0  
Total Fixed Maturity Securities1,633.0  —  21.3  —  (29.8) 244.7  (1,096.6) 772.6  
Equity Securities4.6  —  —  —  —  —  —  4.6  
Embedded Derivative in Modified Coinsurance Arrangement(31.1) 5.5  —  —  —  —  —  (25.6) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 3 - Fair Values of Financial Instruments - Continued


Realized and unrealized investment gains and losses presented in the preceding tables represent gains and losses only for the time during which the applicable financial instruments were classified as Level 3. The transfers between levels resulted primarily from a change in observability of three inputs used to determine fair values of the securities transferred: (1) transactional data for new issuance and secondary trades, (2) broker/dealer quotes and pricing, primarily related to changes in the level of activity in the market and whether the market was considered orderly, and (3) comparable bond metrics from which to perform an analysis. For fair value measurements of financial instruments that were transferred either into or out of Level 3, we reflect the transfers using the fair value at the beginning of the period. We believe this allows for greater transparency, as all changes in fair value that arise during the reporting period of the transfer are disclosed as a component of our Level 3 reconciliation. Gains (losses) which are included in earnings and are attributable to the change in fair value of assets or liabilities valued using significant unobservable inputs and still held at each period end were $(0.8)$(86.9) million and $4.7$5.5 million for the three and six months ended June 30,March 31, 2020 and 2019, respectively, and $(2.3) million and $(4.0) million for the three and six months ended June 30, 2018, respectively. These amounts relate entirely to the change in fair value of an embedded derivative in a modified coinsurance arrangement and are reported as a component of realized investment gains and losses.

23



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued
The table below provides quantitative information regarding the significant unobservable inputs used in Level 3 fair value measurements derived from internal models. Unobservable inputs for fixed maturity securities are weighted by the fair value of the securities. Certain securities classified as Level 3 are excluded from the table below due to limitations in our ability to obtain the underlying inputs used by external pricing sources.
 June 30, 2019
 Fair Value Valuation Method Unobservable Input Range/Weighted Average
 (in millions of dollars)
Fixed Maturity Securities       
All Other Corporate Bonds - Private$203.1
 Market Approach Lack of Marketability
Volatility of Credit
Market Convention
(a)
(b)
(c)
4.77% - 4.77% / 4.77%
0.25% - 14.41% / 1.06%
Priced at Par
Equity Securities - Private4.6
 Market Approach Market Convention(c)Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement(26.4) Discounted Cash Flows Projected Liability Cash Flows(d)Actuarial Assumptions
 December 31, 2018
 Fair Value Valuation Method Unobservable Input Range/Weighted Average
 (in millions of dollars)
Fixed Maturity Securities       
All Other Corporate Bonds - Private$148.5
 Market Approach Lack of Marketability
Volatility of Credit
Market Convention
(a)
(b)
(c)
0.25% - 0.25% / 0.25%
0.25% - 10.99% / 1.00%
Priced at Par
Equity Securities - Private4.6
 Market Approach Market Convention(c)Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement(31.1) Discounted Cash Flows Projected Liability Cash Flows(d)Actuarial Assumptions


(a)Represents basis point adjustments to apply a discount due to the illiquidity of an investmentMarch 31, 2020
(b)Represents basis point adjustments for credit-specific factorsFair ValueValuation MethodUnobservable InputRange/Weighted Average
(in millions of dollars)
(c)Fixed Maturity SecuritiesRepresents a decision to price based on par value, cost, or owner's equity when limited data is available
(d)Represents various actuarial assumptions required to derive the liability cash flows including incidence, termination, and lapse rates
All Other Corporate Bonds - Private$105.9 Market Approach
Lack of Marketability
Volatility of Credit
Market Convention

(a)
(b)
(c)

0.20% - 0.20% / 0.20%
0.08% - 6.94% / 0.7%
Priced at Par
Equity Securities - Private4.6 Market ApproachMarket Convention(c)Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement(109.7)Discounted Cash FlowsProjected Liability Cash FlowsWeighted Spread of Swap Curve(d)Actuarial Assumptions

2.4%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
December 31, 2019
Fair ValueValuation MethodUnobservable InputRange/Weighted Average
(in millions of dollars)
Fixed Maturity Securities
All Other Corporate Bonds - Private$119.2 Market Approach
Lack of Marketability
Volatility of Credit
Market Convention

(a)
(b)
(c)

4.56% - 4.56% / 4.56%
0.35% - 17.68% / 2.2%
Priced at Par
Equity Securities - Private4.6 Market ApproachMarket Convention(c)Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement(22.8)Discounted Cash FlowsProjected Liability Cash Flows
Weighted Spread of Swap Curve
(d)Actuarial Assumptions

0.8%
June 30, 2019
Note 3 -(a)Represents basis point adjustments to apply a discount due to the illiquidity of an investment
(b)Represents basis point adjustments for credit-specific factors
(c)Represents a decision to price based on par value, cost, or owner's equity when limited data is available
(d)Represents various actuarial assumptions required to derive the liability cash flows. Fair Valuesvalue of Financial Instruments - Continuedembedded derivative is most often driven by the change in the weighted average credit spread to the swap curve for the assets backing the hypothetical loan.


Isolated increases in unobservable inputs other than market convention will result in a lower fair value measurement, whereas isolated decreases will result in a higher fair value measurement. The unobservable input for market convention is not sensitive to input movements. The projected liability cash flows used in the fair value measurement of our Level 3 embedded derivative are based on expected claim payments. If claim payments increase, the projected liability cash flows will increase, resulting in a decrease in the fair value of the embedded derivative. Decreases in projected liability cash flows will result in an increase in the fair value of the embedded derivative.

24



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued
Fair Value Measurements for Financial Instruments Not Carried at Fair Value

The methods and assumptions used to estimate fair values of financial instruments not carried at fair value are discussed as follows:

Mortgage Loans: Fair values are estimated using discounted cash flow analyses and interest rates currently being offered for similar loans to borrowers with similar credit ratings and maturities. Loans with similar characteristics are aggregated for purposes of the calculations.

Policy Loans: Fair values for policy loans, net of reinsurance ceded, are estimated using discounted cash flow analyses and interest rates currently being offered to policyholders with similar policies. Carrying amounts for ceded policy loans, which equal $3,348.0$3,451.9 million and $3,449.3$3,490.6 million as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, approximate fair value and are reported on a gross basis in our consolidated balance sheets. A change in interest rates for ceded policy loans will not impact our financial position because the benefits and risks are fully ceded to reinsuring counterparties.

Miscellaneous Long-term Investments: Carrying amounts for tax credit partnerships equal the unamortized balance of our contractual commitments and approximate fair value. Our shares of FHLB common stock are carried at cost, which approximates fair value.

Long-term Debt: Fair values for long-term debt are obtained from independent pricing services or discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements.

FHLBFederal Home Loan Bank (FHLB) Funding Agreements: Funding agreements with the FHLB represent cash advances used for the purpose of investing in fixed maturity securities. Carrying amounts approximate fair value.

Unfunded Commitments to Investment Partnerships: Unfunded equity commitments represent amounts that we have committed to fund certain investment partnerships. These commitments are legally binding, subject to the partnerships meeting specified conditions. Carrying amounts of these financial instruments approximate fair value.


25



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued


The following table presents the carrying amounts and estimated fair values of our financial instruments not measured at fair value and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used:
March 31, 2020
Estimated Fair Value
Level 1Level 2Level 3TotalCarrying Value
(in millions of dollars)
Assets
Mortgage Loans$—  $2,498.1  $—  $2,498.1  $2,452.1  
Policy Loans—  —  3,910.9  3,910.9  3,743.5  
Other Long-term Investments
Miscellaneous Long-term Investments—  34.0  51.1  85.1  85.1  
Total Financial Instrument Assets Not Carried at Fair Value$—  $2,532.1  $3,962.0  $6,494.1  $6,280.7  
Liabilities
Long-term Debt$1,677.8  $1,136.3  $—  $2,814.1  $2,914.3  
Payables for Collateral on Investments
Federal Home Loan Bank (FHLB) Funding Agreements—  451.7  —  451.7  451.7  
Other Liabilities
Unfunded Commitments—  1.9  —  1.9  1.9  
Total Financial Instrument Liabilities Not Carried at Fair Value$1,677.8  $1,589.9  $—  $3,267.7  $3,367.9  
 June 30, 2019
 Estimated Fair Value  
 Level 1 Level 2 Level 3 Total Carrying Value
 (in millions of dollars)
Assets         
Mortgage Loans$
 $2,343.4
 $
 $2,343.4
 $2,218.9
Policy Loans
 
 3,756.3
 3,756.3
 3,633.1
Other Long-term Investments         
Miscellaneous Long-term Investments
 18.5
 74.6
 93.1
 93.1
Total Financial Instrument Assets Not Carried at Fair Value$
 $2,361.9
 $3,830.9
 $6,192.8
 $5,945.1
          
Liabilities         
Long-term Debt$2,171.4
 $1,479.5
 $
 $3,650.9
 $3,341.2
Other Liabilities         
Unfunded Commitments
 2.3
 
 2.3
 2.3
Total Financial Instrument Liabilities Not Carried at Fair Value$2,171.4
 $1,481.8
 $
 $3,653.2
 $3,343.5
          
          
 December 31, 2018
 Estimated Fair Value  
 Level 1 Level 2 Level 3 Total Carrying Value
 (in millions of dollars)
Assets         
Mortgage Loans$
 $2,317.4
 $
 $2,317.4
 $2,295.0
Policy Loans
 
 3,831.1
 3,831.1
 3,729.9
Other Long-term Investments        
Miscellaneous Long-term Investments
 24.1
 91.5
 115.6
 115.6
Total Financial Instrument Assets Not Carried at Fair Value$
 $2,341.5
 $3,922.6
 $6,264.1
 $6,140.5
          
Liabilities         
Long-term Debt$1,429.8
 $1,639.4
 $
 $3,069.2
 $2,971.3
Payables for Collateral on Investments         
Federal Home Loan Bank (FHLB) Funding Agreements
 104.0
 
 104.0
 104.0
Other Liabilities         
Unfunded Commitments
 2.3
 
 2.3
 2.3
Total Financial Instrument Liabilities Not Carried at Fair Value$1,429.8
 $1,745.7
 $
 $3,175.5
 $3,077.6

26



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 3 - Fair Values of Financial Instruments - Continued


December 31, 2019
Estimated Fair Value
Level 1Level 2Level 3TotalCarrying Value
(in millions of dollars)
Assets
Mortgage Loans$—  $2,556.3  $—  $2,556.3  $2,397.0  
Policy Loans—  —  3,911.4  3,911.4  3,779.5  
Other Long-term Investments
Miscellaneous Long-term Investments—  18.5  58.4  76.9  76.9  
Total Financial Instrument Assets Not Carried at Fair Value$—  $2,574.8  $3,969.8  $6,544.6  $6,253.4  
Liabilities
Long-term Debt$1,712.8  $1,526.2  $—  $3,239.0  $2,926.9  
Other Liabilities
Unfunded Commitments—  1.9  —  1.9  1.9  
Total Financial Instrument Liabilities Not Carried at Fair Value$1,712.8  $1,528.1  $—  $3,240.9  $2,928.8  

The carrying values of financial instruments such as short-term investments, cash and bank deposits, accounts and premiums receivable, accrued investment income, securities lending agreements, and short-term debt approximate fair value due to the short-term nature of the instruments. As such, these financial instruments are not included in the above chart.

Fair values for insurance contracts other than investment contracts are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in our overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.

27



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 4 - Investments

Fixed Maturity Securities

At June 30, 2019March 31, 2020 and December 31, 2018,2019, all fixed maturity securities were classified as available-for-sale. The amortized cost and fair values of securities by security type are shown as follows:
 June 30, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
 (in millions of dollars)
United States Government and Government Agencies and Authorities$1,727.0
 $159.2
 $
 $1,886.2
States, Municipalities, and Political Subdivisions2,229.8
 478.5
 0.3
 2,708.0
Foreign Governments806.8
 199.5
 1.6
 1,004.7
Public Utilities6,414.4
 1,217.5
 18.2
 7,613.7
Mortgage/Asset-Backed Securities1,461.8
 105.1
 0.5
 1,566.4
All Other Corporate Bonds28,126.0
 3,623.0
 127.8
 31,621.2
Redeemable Preferred Stocks39.0
 1.0
 
 40.0
Total Fixed Maturity Securities$40,804.8
 $5,783.8
 $148.4
 $46,440.2
 December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
 (in millions of dollars)
United States Government and Government Agencies and Authorities$1,702.1
 $123.2
 $10.9
 $1,814.4
States, Municipalities, and Political Subdivisions2,121.5
 307.1
 4.4
 2,424.2
Foreign Governments825.8
 162.7
 4.8
 983.7
Public Utilities6,626.2
 850.0
 63.4
 7,412.8
Mortgage/Asset-Backed Securities1,523.8
 67.2
 8.3
 1,582.7
All Other Corporate Bonds27,436.8
 1,981.6
 664.4
 28,754.0
Redeemable Preferred Stocks39.0
 1.1
 0.2
 39.9
Total Fixed Maturity Securities$40,275.2
 $3,492.9
 $756.4
 $43,011.7

 March 31, 2020
 Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
(in millions of dollars)
United States Government and Government Agencies and Authorities$1,155.6  $227.1  $—  $1,382.7  
States, Municipalities, and Political Subdivisions3,129.0  528.2  9.8  3,647.4  
Foreign Governments786.3  174.2  2.2  958.3  
Public Utilities6,361.7  1,231.6  42.4  7,550.9  
Mortgage/Asset-Backed Securities1,316.7  129.9  0.9  1,445.7  
All Other Corporate Bonds28,238.0  3,037.4  1,011.3  30,264.1  
Redeemable Preferred Stocks43.0  —  0.6  42.4  
Total Fixed Maturity Securities$41,030.3  $5,328.4  $1,067.2  $45,291.5  

December 31, 2019
 Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
(in millions of dollars)
United States Government and Government Agencies and Authorities$1,246.1  $156.0  $0.4  $1,401.7  
States, Municipalities, and Political Subdivisions2,863.1  507.6  7.3  3,363.4  
Foreign Governments843.5  175.2  1.0  1,017.7  
Public Utilities6,436.7  1,303.7  8.2  7,732.2  
Mortgage/Asset-Backed Securities1,377.8  101.3  0.4  1,478.7  
All Other Corporate Bonds28,273.1  4,211.2  73.9  32,410.4  
Redeemable Preferred Stocks39.0  0.6  —  39.6  
Total Fixed Maturity Securities$41,079.3  $6,455.6  $91.2  $47,443.7  

28



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 4 - Investments - Continued


The following charts indicate the length of time our fixed maturity securities have been in a gross unrealized loss position.
 June 30, 2019
 Less Than 12 Months 12 Months or Greater
 
Fair
Value
 
Gross
Unrealized
Loss
 
Fair
Value
 
Gross
Unrealized
Loss
 (in millions of dollars)
United States Government and Government Agencies and Authorities$
 $
 $2.1
 $
States, Municipalities, and Political Subdivisions6.0
 0.3
 
 
Foreign Governments10.6
 0.4
 11.7
 1.2
Public Utilities92.0
 2.1
 105.3
 16.1
Mortgage/Asset-Backed Securities26.4
 0.1
 44.2
 0.4
All Other Corporate Bonds438.0
 20.6
 1,652.1
 107.2
Total Fixed Maturity Securities$573.0
 $23.5
 $1,815.4
 $124.9
 December 31, 2018
 Less Than 12 Months 12 Months or Greater
 
Fair
Value
 
Gross
Unrealized
Loss
 
Fair
Value
 
Gross
Unrealized
Loss
 (in millions of dollars)
United States Government and Government Agencies and Authorities$68.8
 $1.7
 $212.5
 $9.2
States, Municipalities, and Political Subdivisions183.2
 2.1
 65.0
 2.3
Foreign Governments58.4
 3.8
 12.0
 1.0
Public Utilities740.1
 31.3
 325.7
 32.1
Mortgage/Asset-Backed Securities81.5
 1.2
 201.6
 7.1
All Other Corporate Bonds9,240.2
 462.2
 1,704.9
 202.2
Redeemable Preferred Stocks18.8
 0.2
 
 
Total Fixed Maturity Securities$10,391.0
 $502.5
 $2,521.7
 $253.9

 March 31, 2020
 Less Than 12 Months12 Months or Greater
 Fair
Value
Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
(in millions of dollars)
States, Municipalities, and Political Subdivisions$299.5  $9.8  $0.1  $—  
Foreign Governments4.1  2.2  —  —  
Public Utilities671.9  37.4  36.2  5.0  
Mortgage/Asset-Backed Securities43.7  0.9  0.1  —  
All Other Corporate Bonds7,238.3  935.1  119.1  76.2  
Redeemable Preferred Stocks22.4  0.6  —  —  
Total Fixed Maturity Securities$8,279.9  $986.0  $155.5  $81.2  

 December 31, 2019
 Less Than 12 Months12 Months or Greater
 Fair
Value
Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
(in millions of dollars)
United States Government and Government Agencies and Authorities$110.2  $0.4  $—  $—  
States, Municipalities, and Political Subdivisions331.0  7.3  0.3  —  
Foreign Governments69.4  1.0  —  —  
Public Utilities168.3  2.6  37.0  5.6  
Mortgage/Asset-Backed Securities47.0  0.4  3.1  —  
All Other Corporate Bonds579.1  29.1  379.8  44.8  
Total Fixed Maturity Securities$1,305.0  $40.8  $420.2  $50.4  




29



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 4 - Investments - Continued


The following is a distribution of the maturity dates for fixed maturity securities. The maturity dates have not been adjusted for possible calls or prepayments.
 June 30, 2019
 
Total
Amortized Cost
 Unrealized Gain Position Unrealized Loss Position
  Gross Gain Fair Value Gross Loss Fair Value
 (in millions of dollars)
1 year or less$1,082.2
 $17.2
 $1,065.7
 $3.3
 $30.4
Over 1 year through 5 years6,228.2
 433.8
 6,232.6
 52.1
 377.3
Over 5 years through 10 years13,336.4
 1,477.5
 13,952.1
 28.8
 833.0
Over 10 years18,696.2
 3,750.2
 21,305.6
 63.7
 1,077.1
 39,343.0
 5,678.7
 42,556.0
 147.9
 2,317.8
Mortgage/Asset-Backed Securities1,461.8
 105.1
 1,495.8
 0.5
 70.6
Total Fixed Maturity Securities$40,804.8
 $5,783.8
 $44,051.8
 $148.4
 $2,388.4
 December 31, 2018
 
Total
Amortized Cost
 Unrealized Gain Position Unrealized Loss Position
  Gross Gain Fair Value Gross Loss Fair Value
 (in millions of dollars)
1 year or less$1,073.3
 $14.5
 $1,020.1
 $8.4
 $59.3
Over 1 year through 5 years6,267.5
 300.6
 5,186.9
 80.2
 1,301.0
Over 5 years through 10 years12,573.4
 795.0
 6,812.7
 303.9
 6,251.8
Over 10 years18,837.2
 2,315.6
 15,779.7
 355.6
 5,017.5
 38,751.4
 3,425.7
 28,799.4
 748.1
 12,629.6
Mortgage/Asset-Backed Securities1,523.8
 67.2
 1,299.6
 8.3
 283.1
Total Fixed Maturity Securities$40,275.2
 $3,492.9
 $30,099.0
 $756.4
 $12,912.7


 March 31, 2020
 Total
Amortized Cost
Unrealized Gain PositionUnrealized Loss Position
 Gross GainFair ValueGross LossFair Value
(in millions of dollars)
1 year or less$1,106.9  $19.8  $1,055.1  $3.0  $68.6  
Over 1 year through 5 years6,322.2  343.6  4,963.1  182.4  1,520.3  
Over 5 years through 10 years13,288.5  1,207.3  10,271.5  416.1  3,808.2  
Over 10 years18,996.0  3,627.8  19,164.5  464.8  2,994.5  
39,713.6  5,198.5  35,454.2  1,066.3  8,391.6  
Mortgage/Asset-Backed Securities1,316.7  129.9  1,401.9  0.9  43.8  
Total Fixed Maturity Securities$41,030.3  $5,328.4  $36,856.1  $1,067.2  $8,435.4  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
 December 31, 2019
 Total
Amortized Cost
Unrealized Gain PositionUnrealized Loss Position
 Gross GainFair ValueGross LossFair Value
(in millions of dollars)
1 year or less$821.5  $14.5  $832.6  $0.2  $3.2  
Over 1 year through 5 years6,286.2  456.5  6,423.4  41.7  277.6  
Over 5 years through 10 years13,570.8  1,688.3  14,881.3  14.6  363.2  
Over 10 years19,023.0  4,195.0  22,152.6  34.3  1,031.1  
39,701.5  6,354.3  44,289.9  90.8  1,675.1  
Mortgage/Asset-Backed Securities1,377.8  101.3  1,428.6  0.4  50.1  
Total Fixed Maturity Securities$41,079.3  $6,455.6  $45,718.5  $91.2  $1,725.2  
Unum Group and Subsidiaries
June 30, 2019
Note 4 - Investments - Continued


The following chart depicts an analysis of our fixed maturity security portfolio between investment-grade and below-investment-grade categories as of June 30, 2019:March 31, 2020:
     Gross Unrealized Loss
 Fair Value Gross Unrealized Gain Amount Percent of Total Gross Unrealized Loss
 (in millions of dollars)  
Investment-Grade$43,232.8
 $5,664.6
 $58.5
 39.4%
Below-Investment-Grade3,207.4
 119.2
 89.9
 60.6
Total Fixed Maturity Securities$46,440.2
 $5,783.8
 $148.4
 100.0%

Gross Unrealized Loss
Fair ValueGross Unrealized GainAmountPercent of Total Gross Unrealized Loss
(in millions of dollars)
Investment-Grade$42,303.1  $5,273.9  $650.2  60.9 %
Below-Investment-Grade2,988.4  54.5  417.0  39.1  
Total Fixed Maturity Securities$45,291.5  $5,328.4  $1,067.2  100.0 %

The unrealized losses on investment-grade fixed maturity securities principally relate to changes in interest rates or changes in market or sector credit spreads which occurred subsequent to the acquisition of the securities. Below-investment-grade fixed maturity securities are generally more likely to develop credit concerns than investment-grade securities. At June 30, 2019,March 31, 2020, the unrealized losses in our below-investment-grade fixed maturity securities were generally due to credit spreads in certain industries or sectors and, to a lesser extent, credit concerns related to specific securities. For each specific security in an unrealized loss position, we believe that there are positive factors which mitigate credit concerns and that the securities for
30



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 4 - Investments - Continued
which we have not recorded an other-than-temporary impairmenta credit loss will recover in value. We have the ability and intend to continue to hold these securities to recovery of amortized cost and believe that no credit losses have occurred.

As of June 30, 2019,March 31, 2020, we held 105336 individual investment-grade fixed maturity securities and 51127 individual below-investment-grade fixed maturity securities that were in an unrealized loss position, of which 598 investment-grade fixed maturity securities and 4114 below-investment-grade fixed maturity securities had been in an unrealized loss position continuously for over one year.

In determining when a decline in fair value below amortized cost of a fixed maturity security is other than temporary,represents a credit loss, we evaluate the following factors:

Whether we expect to recover the entire amortized cost basis of the security
Whether we intend to sell the security or will be required to sell the security before the recovery of its amortized cost basis
Whether the security is current as to principal and interest payments
The significance of the decline in value
The time period during which there has been a significant decline in value
Current and future business prospects and trends of earnings
The valuation of the security's underlying collateral
��Relevant industry conditions and trends relative to their historical cycles
Relevant industry conditions and trends relative to their historical cycles
Market conditions
Rating agency and governmental actions
Bid and offering prices and the level of trading activity
Adverse changes in estimated cash flows for securitized investments
Changes in fair value subsequent to the balance sheet date
Any other key measures for the related security

While determining other-than-temporary impairmentswhether a credit loss exists is a judgmental area, we utilize a formal, well-defined, and disciplined process to monitor and evaluate our fixed income investment portfolio, supported by issuer specific research and documentation as of the end of each period. The process results in a thorough evaluation of problem investments and the recording of credit losses on a timely basis for investments determined to have a credit loss. As of March 31, 2020, we determined that a credit loss had occurred for securities we owned related to three separate issuers. We do not intend to sell these securities and it is not more likely than not that we will be required to sell these securities before recovery of our estimated value. For these securities, which are included within "All Other Corporate Bonds" in the preceding charts, we recorded an other-than-temporary impairment.allowance for credit losses totaling $48.0 million based on the present value of our best estimate of cash flows expected to be collected, discounted using the effective interest rate implicit in the security at the date of acquisition. When estimating future cash flows, we analyze the strength of the issuer’s balance sheet, its debt obligations and near-term funding arrangements, cash flow and liquidity, the profitability of its core businesses, the availability of marketable assets which could be sold to increase liquidity, its industry fundamentals and regulatory environment, and its access to capital markets. We also recorded credit losses of $5.9 million in the first quarter of 2020 to write-down the amortized cost to fair value for securities related to two separate issuers that we intend to sell.

We held no fixed maturity securities as of June 30, 2019 or December 31, 2018 for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income.

At June 30, 2019,March 31, 2020, we had commitments of $103.5$88.8 million to fund private placement fixed maturity securities, the amount of which may or may not be funded. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 4 - Investments - Continued


Variable Interest Entities

We invest in variable interests issued by variable interest entities. These investments include tax credit partnerships, private equity partnerships, and special purpose entities. For those variable interests that are not consolidated in our financial statements, we are not the primary beneficiary because we have neither the power to direct the activities that are most significant to economic performance nor the responsibility to absorb a majority of the expected losses. The determination of whether we are the primary beneficiary is performed at the time of our initial investment and at the date of each subsequent reporting period.

31



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 4 - Investments - Continued
As of June 30,March 31, 2020, the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was $689.2 million, comprised of $51.1 million of tax credit partnerships and $638.1 million of private equity partnerships. At December 31, 2019, the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was $614.9$675.1 million, comprised of $74.6$58.4 million of tax credit partnerships and $540.3 million of private equity partnerships. At December 31, 2018, the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was $575.3 million, comprised of $91.5 million of tax credit partnerships and $483.8$616.7 million of private equity partnerships.  These variable interest entity investments are reported as other long-term investments in our consolidated balance sheets.

The Company invests in tax credit partnerships primarily for the receipt of income tax credits and tax benefits derived from passive losses on the investments. Amounts recognized in the consolidated statements of income are as follows:
 Three Months Ended June 30 Six Months Ended June 30
 2019 2018 2019 2018
 (in millions of dollars)
Income Tax Credits$9.4
 $10.3
 $18.8
 $20.7
Amortization, net of tax(6.1) (7.0) (12.9) (14.0)
Income Tax Benefit$3.3
 $3.3
 $5.9
 $6.7

Three Months Ended March 31
20202019
(in millions of dollars)
Income Tax Credits$8.3  $9.4  
Amortization, Net of Tax(5.5) (6.8) 
Income Tax Benefit$2.8  $2.6  

Contractually, we are a limited partner in these tax credit partnerships, and our maximum exposure to loss is limited to the carrying value of our investment, which includes $2.3$1.9 million of unfunded unconditional commitments at June 30, 2019.March 31, 2020. See Note 3 for commitments to fund private equity partnerships.

We are the sole beneficiary of a special purpose entity which is consolidated in our financial statements.  This entity is a securitized asset trust containing a highly rated bond for principal protection which we contributed into the trust at the time it was established.  There are no restrictions on the asset held in this trust, and the trust is free to dispose of the asset at any time.  The fair values of the bond were $159.0 million and $156.7 million as of June 30, 2019 and December 31, 2018, respectively.  The bond is reported as a component of fixed maturity securities in our consolidated balance sheets.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 4 - Investments - Continued


Mortgage Loans

Our mortgage loan portfolio is well diversified by both geographic region and property type to reduce risk of concentration. All of our mortgage loans are collateralized by commercial real estate. When issuing a new loan, our general policy is not to exceed a loan-to-value ratio, or the ratio of the loan balance to the estimated fair value of the underlying collateral, of 75 percent. We update the loan-to-value ratios at least every three years for each loan, and properties undergo a general inspection at least every two years. Our general policy for newly issued loans is to have a debt service coverage ratio greater than 1.25 times on a normalized 25 year amortization period. We update our debt service coverage ratios annually. Mortgage

We adopted new accounting guidance that requires us to estimate an allowance for expected credit losses effective January 1, 2020. We carry our mortgage loans at amortized cost less the allowance for expected credit losses. The amortized cost of our mortgage loans was $2,463.2 million and $2,397.0 million at March 31, 2020 and December 31, 2019, respectively. The allowance for expected credit losses was $11.1 million at March 31, 2020. Interest income is accrued on the principal amount of the loan based on the loan's contractual interest rate. We report accrued interest income for our mortgage loans as accrued investment income on our consolidated balance sheet, and the amount of the accrued income was $8.5 million and $8.3 million at March 31, 2020 and December 31, 2019, respectively.

32



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 4 - Investments - Continued
The carrying amount of mortgage loans by property type and geographic region are presented below.

June 30, 2019 December 31, 2018March 31, 2020December 31, 2019
(in millions of dollars)(in millions of dollars)
Carrying Percent of Carrying Percent of
Amount Total Amount TotalCarrying AmountPercent of TotalCarrying AmountPercent of Total
Property Type       Property Type
Apartment$496.2
 22.4% $491.0
 21.4%Apartment$645.1  26.3 %$608.8  25.4 %
Industrial583.7
 26.3
 635.6
 27.7
Industrial613.0  25.0  623.6  26.0  
Office577.1
 26.0
 604.2
 26.3
Office543.0  22.1  549.3  22.9  
Retail513.7
 23.2
 519.5
 22.6
Retail603.8  24.7  567.5  23.7  
Other48.2
 2.1
 44.7
 2.0
Other47.2  1.9  47.8  2.0  
Total$2,218.9
 100.0% $2,295.0
 100.0%Total$2,452.1  100.0 %$2,397.0  100.0 %
RegionRegion
New EnglandNew England$41.4  1.7 %$28.9  1.2 %
Mid-AtlanticMid-Atlantic208.4  8.5  184.5  7.7  
East North CentralEast North Central346.9  14.1  329.2  13.7  
West North CentralWest North Central212.0  8.6  215.4  9.0  
South AtlanticSouth Atlantic506.2  20.7  509.2  21.2  
East South CentralEast South Central113.0  4.6  114.3  4.8  
West South CentralWest South Central265.3  10.8  246.6  10.3  
MountainMountain256.1  10.4  268.2  11.2  
PacificPacific502.8  20.6  500.7  20.9  
TotalTotal$2,452.1  100.0 %$2,397.0  100.0 %

Region       
     New England$41.6
 1.9% $45.9
 2.0%
     Mid-Atlantic158.2
 7.1
 160.6
 7.0
     East North Central309.7
 14.0
 354.4
 15.4
     West North Central192.6
 8.7
 190.3
 8.3
     South Atlantic470.5
 21.2
 485.2
 21.1
     East South Central99.7
 4.5
 105.5
 4.6
     West South Central219.4
 9.9
 240.6
 10.5
     Mountain264.6
 11.9
 242.7
 10.6
     Pacific462.6
 20.8
 469.8
 20.5
Total$2,218.9
 100.0% $2,295.0
 100.0%
The risk in our mortgage loan portfolio is primarily related to vacancy rates. Events or developments, such as economic conditions that impact the ability of the borrowers to ensure occupancy of the property, may have a negative effect on our mortgage loan portfolio, particularly to the extent that our portfolio is concentrated in an affected region or property type. An increase in vacancies increases the probability of default, which would negatively affect our expected losses in our mortgage loan portfolio.

We evaluate each of our mortgage loans individually for impairment and assign an internal credit quality rating based on a comprehensive rating system used to evaluate the credit risk of the loan. The factors we use to derive our internal credit ratings may include the following:

Loan-to-value ratio
Debt service coverage ratio based on current operating income
Property location, including regional economics, trends and demographics
Age, condition, and construction quality of property
Current and historical occupancy of property
Lease terms relative to market
Tenant size and financial strength
Borrower's financial strength
Borrower's equity in transaction
Additional collateral, if any


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 4 - Investments - Continued


Although all available and applicable factors are considered in our analysis, loan-to-value and debt service coverage ratios are the most critical factors in determining whether we will initially issue the loan and also in assigning values and determining impairment. We assign an overall rating to each loan using an internal rating scale of AaAA (highest quality) to B (lowest
33



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 4 - Investments - Continued
quality). We review and adjust, as needed, our internal credit quality ratings on an annual basis. This review process is performed more frequently for mortgage loans deemed to have a higher risk of delinquency.

MortgageWe estimate an allowance for credit losses that we expect to incur over the life of our mortgage loans sortedusing a probability of default method. For each loan, we estimate the probability that the loan will default before its maturity (probability of default) and the amount of the loss if the loan defaults (loss given default). These two factors result in an expected loss percentage that is applied to the amortized cost of each loan to determine the expected credit loss. As we are the original underwriter of the mortgage loans, the amortized cost generally equals the principal amount of the loan. We measure losses on defaults of our mortgage loans as the excess amortized cost of the mortgage loan over the fair value of the underlying collateral in the event that we foreclose on the loan or over the expected future cash flows of the loan if we retain the mortgage loan until payoff. We do not purchase mortgage loans with existing credit impairments.

In estimating the probability of default, we consider historical experience, current market conditions, and reasonable and supportable forecasts about the future market conditions. We utilize our historical loan experience in combination with a large third-party industry database for a period of time that aligns with the average life of our loans based on the maturity dates of the loans and prepayment experience. Our model utilizes an industry database of the historical loss experience based on our actual portfolio characteristics such as loan-to-value, debt service coverage, collateral type, geography, and late payment history. In addition, because we actively manage our portfolio, we may extend the term of a loan in certain situations and will accordingly extend the maturity date in the estimate of probability of default. In estimating the loss given default, we primarily consider the type and value of collateral and secondarily the expected liquidation costs and time to recovery.

The primary market factors that we consider in our forecast of future market conditions are gross domestic product, unemployment rates, interest rates, inflation, commercial real estate values, household formation, and retail sales. We also forecast certain loan specific factors such as growth in the fair value and net operating income of collateral by property type. We include our estimate of these factors over a two-year period and for the remainder of the loans’ estimated lives, adjusted for estimated prepayments. Past the two-year forecast period, we revert to the historical assumptions ratably by the end of the fifth year of the loan after which we utilize only historical assumptions.

We utilize various scenarios to estimate our allowance for expected losses ranging from a base case scenario that reflects normal market conditions to a severe case scenario that reflects adverse market conditions. We will adjust our allowance each period to utilize the scenario or weighting of the scenarios that best reflects our view of current market conditions.

34



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 4 - Investments - Continued
The following tables present information about mortgage loans by the applicable credit quality indicators, are as follows:indicators:
 June 30, 2019 December 31, 2018
 (in millions of dollars)
Internal Rating   
     A$390.8
 $477.5
     Baa1,828.1
 1,814.1
     Ba
 3.4
Total$2,218.9
 $2,295.0
Loan-to-Value Ratio   
     <= 65%$1,122.8
 $1,204.8
     > 65% <= 75%1,056.7
 1,049.1
     > 75% <= 85%
 11.8
     > 85%39.4
 29.3
Total$2,218.9
 $2,295.0

March 31, 2020December 31, 2019
(in millions of dollars)
Carrying AmountPercent of TotalCarrying AmountPercent of Total
Internal Rating
A$485.7  19.8 %$485.6  20.3 %
BBB1,919.6  78.3  1,911.4  79.7  
BB30.0  1.2  —  —  
B16.8  0.7  —  —  
Total$2,452.1  100.0 %$2,397.0  100.0 %
Loan-to-Value Ratio
<= 65%$1,244.4  50.7 %$1,215.1  50.7 %
> 65% <= 75%1,093.5  44.6  1,053.0  43.9  
> 75% <= 85%40.5  1.7  91.4  3.8  
> 85%73.7  3.0  37.5  1.6  
Total$2,452.1  100.0 %$2,397.0  100.0 %

The following table presents the amortized cost of our mortgage loans by year of origination and credit quality indicators at March 31, 2020:

Prior to 201620162017201820192020Total
(in millions of dollars)
Internal Rating
A$236.7  $119.0  $53.1  $60.4  $17.6  $—  $486.8  
BBB559.7  294.0  285.0  336.7  356.6  97.6  1,929.6  
BB30.0  —  —  —  —  —  30.0  
B16.8  —  —  —  —  —  16.8  
Total Amortized Cost843.2  413.0  338.1  397.1  374.2  97.6  2,463.2  
Allowance for credit losses(2.3) (1.8) (1.7) (2.4) (2.3) (0.6) (11.1) 
Carrying Amount$840.9  $411.2  $336.4  $394.7  $371.9  $97.0  $2,452.1  
Loan-to-Value Ratio
<=65%$695.6  $241.5  $119.1  $78.4  $84.3  $29.0  $1,247.9  
>65<=75%69.5  134.4  219.0  318.7  289.9  68.6  1,100.1  
>75%<=85%3.7  37.1  —  —  —  —  40.8  
>85%74.4  —  —  —  —  —  74.4  
Total Amortized Cost843.2  413.0  338.1  397.1  374.2  97.6  2,463.2  
Allowance for credit losses(2.3) (1.8) (1.7) (2.4) (2.3) (0.6) (11.1) 
Carrying Amount$840.9  $411.2  $336.4  $394.7  $371.9  $97.0  $2,452.1  

35



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 4 - Investments - Continued
The following table presents a roll-forward of allowance for expected credit losses by loan-to-value ratio:

Three Months Ended March 31, 2020
Beginning of YearCurrent Period ProvisionsWrite-OffsRecoveriesEnd of Period
(in millions of dollars)
Loan-to-Value Ratio
 <=65%$2.8  $0.7  $—  $—  $3.5  
 >65<=75%4.6  1.9  —  —  6.5  
 >75%<=85%0.5  (0.1) —  —  0.4  
 >85%0.4  0.3  —  —  0.7  
Total$8.3  $2.8  $—  $—  $11.1  


The increase in our estimate of expected losses during the first quarter of 2020 is primarily due to the expected impact of COVID-19. To reflect market conditions at March 31, 2020, we weighted our estimate to reflect a more adverse market as we expect the probability of default could increase as the effects of COVID-19 are experienced in the market.

There were no0 troubled debt restructurings during the three and six months ended June 30,March 31, 2020 or 2019. We had one mortgage loan which was modified in a troubled debt restructuring during the second quarter of 2018. The loan had a principal balance of $3.6 million prior to the restructuring, wherein the terms of the loan were modified to reduce monthly payments to interest-only at the current note rateAt March 31, 2020 and to permit a discounted payoff by September 2018. We recorded an allowance for credit losses on mortgage loans for this restructuring and recognized an impairment loss of $0.2 million in the second quarter of 2018.

At June 30,December 31, 2019, we held no0 mortgage loans that were greater than 90 days past due regarding principal and/or interest payments. At December

We had 0 loan foreclosures for the three months ended March 31, 2018, we held one mortgage loan that was greater than 90 days past due regarding principal and/or interest payments which was settled during2020 and 2019. During the first quarter of 2019, resulting ina mortgage loan previously impaired was settled and we recognized an additional credit loss of $0.1 million which brought the total loss on the loan to $0.3 million.

For the three months ended March 31, 2020, we had 0 impaired mortgage loans. Our average investment in impaired mortgage loans was zero and $1.1$2.3 million for the three and six months ended June 30, 2019, respectively. Our average investment in impaired mortgage loans was $1.1 million for the three and six months ended June 30, 2018.March 31, 2019. We did not recognize any interest income on mortgage loans subsequent to impairment duringfor the three and six months ended June 30, 2019 or 2018.March 31, 2020 and 2019.

There have been no changes to our accounting policies or methodology from the prior period regarding estimating the allowance for credit losses on our mortgage loans. The activity in the allowance for credit losses is as follows:
 Three Months Ended June 30 Six Months Ended June 30
 2019 2018 2019 2018
 (in millions of dollars)
Balance at Beginning of Period$
 $
 $0.2
 $
Provision
 0.2
 0.1
 0.2
Charge-offs, Net of Recoveries
 
 (0.3) 
Balance at End of Period$
 $0.2
 $
 $0.2


At June 30, 2019,March 31, 2020, we had commitments of $87.1$17.5 million to fund certain commercial mortgage loans, the amount of which may or may not be funded. Consistent with how we determine the estimate of current expected credit losses for our funded mortgage loans each period, we estimate expected credit losses for loans that have not been funded but we are committed to fund at the end of each period. At January 1, 2020 and March 31, 2020, we recorded $0.3 million and $0.1 million, respectively, in expected losses related to unfunded loan commitments as a liability within other liabilities line on our consolidated balance sheets.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 4 - Investments - Continued


Transfers of Financial Assets

To manage our cash position more efficiently, we may enter into repurchase agreements with unaffiliated financial institutions. We generally use repurchase agreements as a means to finance the purchase of invested assets or for short-term general business purposes until projected cash flows become available from our operations or existing investments. Our repurchase agreements are typically outstanding for less than 30 days. We post collateral through our repurchase agreement transactions whereby the counterparty commits to purchase securities with the agreement to resell them to us at a later, specified date. The fair value of collateral posted is generally 102 percent of the cash received.

Our investment policy also permits us to lend fixed maturity securities to unaffiliated financial institutions in short-term securities lending agreements. These agreements increase our investment income with minimal risk. Our securities lending policy requires that a minimum of 102 percent of the fair value of the securities loaned be maintained as collateral. We may receive cash and/or securities as collateral under these agreements. Cash received as collateral is typically reinvested in short-term investments. If securities are received as collateral, we are not permitted to sell or re-post them.

36



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 4 - Investments - Continued
As of June 30,March 31, 2020, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $4.9 million, for which we received collateral in the form of securities of $5.5 million. As of December 31, 2019, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $266.7$176.4 million, for which we received collateral in the form of cash and securities of $5.8 million and $274.5 million, respectively. As of December 31, 2018, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $164.1 million, for which we received collateral in the form of cash and securities of $0.1 million and $171.4 million, respectively.$186.5 million. We had no0 outstanding repurchase agreements at June 30, 2019March 31, 2020 or December 31, 2018.2019.

The remaining contractual maturities of our securities lending agreements disaggregated by class of collateral pledged are as follows:
  June 30, 2019 December 31, 2018
  Overnight and Continuous
  (in millions of dollars)
United States Government and Government Agencies and Authorities $0.8
 $
Public Utilities 0.4
 
All Other Corporate Bonds 4.6
 0.1
Total Borrowings 5.8
 0.1
Gross Amount of Recognized Liability for Securities Lending Transactions 5.8
 0.1
Amounts Related to Agreements Not Included in Offsetting Disclosure Contained Herein $
 $


Certain of our U.S. insurance subsidiaries are members of regional FHLBs. Membership, which requires that we purchase a minimum amount of FHLB common stock on which we receive dividends, provides access to low-cost funding. Advances received from the FHLB are used for the purchase of short-term investments or fixed maturity securities. Additional common stock purchases may be required, based on the amount of funds we borrow from the FHLBs. The carrying value of common stock owned, collateral posted, and advances received are as follows:
  June 30, 2019 December 31, 2018
  (in millions of dollars)
Carrying Value of FHLB Common Stock $18.5
 $24.1
Advances from FHLB $
 $104.0
     
Carrying Value of Collateral Posted to FHLB    
Fixed Maturity Securities $225.0
 $219.8
Commercial Mortgage Loans 176.9
 179.9
Total Carrying Value of Collateral Posted to FHLB $401.9
 $399.7


March 31, 2020December 31, 2019
(in millions of dollars)
Carrying Value of FHLB Common Stock$34.0  $18.5  
Advances from FHLB$451.7  $—  
Carrying Value of Collateral Posted to FHLB
Fixed Maturity Securities$712.3  $182.1  
Commercial Mortgage Loans236.8  164.4  
Total Carrying Value of Collateral Posted to FHLB$949.1  $346.5  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 4 - Investments - Continued


Offsetting of Financial Instruments

We enter into master netting agreements with each of our derivatives counterparties. These agreements provide for conditional rights of set-off upon the occurrence of an early termination event. An early termination event is considered a default, and it allows the non-defaulting party to offset its contracts in a loss position against any gain positions or payments due to the defaulting party. Under our agreements, default type events are defined as failure to pay or deliver as contractually agreed, misrepresentation, bankruptcy, or merger without assumption. See Note 5 for further discussion of collateral related to our derivative contracts.

We have securities lending agreements with unaffiliated financial institutions that post collateral to us in return for the use of our fixed maturity securities. A right of set-off exists that allows us to keep and apply collateral received in the event of default by the counterparty. Default within a securities lending agreement would typically occur if the counterparty failed to return the securities borrowed from us as contractually agreed. In addition, if we default by not returning collateral received, the counterparty has a right of set-off against our securities or any other amounts due to us.

37



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 4 - Investments - Continued
Shown below are our financial instruments that either meet the accounting requirements that allow them to be offset in our balance sheets or that are subject to an enforceable master netting arrangement or similar agreement. Our accounting policy is to not offset these financial instruments in our balance sheets. Net amounts disclosed below have been reduced by the amount of collateral pledged to or received from our counterparties.

 June 30, 2019March 31, 2020
 Gross Amount     Gross Amount Not  Gross AmountGross Amount Not
 of Recognized Gross Amount Net Amount Offset in Balance Sheet  of RecognizedGross AmountNet AmountOffset in Balance Sheet
 Financial Offset in Presented in Financial Cash NetFinancialOffset inPresented inFinancialCashNet
 Instruments Balance Sheet Balance Sheet Instruments Collateral AmountInstrumentsBalance SheetBalance SheetInstrumentsCollateralAmount
 (in millions of dollars)(in millions of dollars)
Financial Assets: 
Financial Assets:
Derivatives $27.4
 $
 $27.4
 $(5.1) $(22.3) $
Derivatives$87.9  $—  $87.9  $(27.1) $(59.7) $1.1  
Securities Lending 266.7
 
 266.7
 (260.9) (5.8) 
Securities Lending4.9  —  4.9  (4.9) —  —  
Total $294.1
 $
 $294.1
 $(266.0) $(28.1) $
Total$92.8  $—  $92.8  $(32.0) $(59.7) $1.1  
            
Financial Liabilities:            Financial Liabilities:
Derivatives $36.2
 $
 $36.2
 $(32.0) $
 $4.2
Derivatives$32.6  $—  $32.6  $(32.5) $—  $0.1  
Securities Lending 5.8
 
 5.8
 (5.8) 
 
Total $42.0
 $
 $42.0
 $(37.8) $
 $4.2

December 31, 2019
Gross AmountGross Amount Not
of RecognizedGross AmountNet AmountOffset in Balance Sheet
FinancialOffset inPresented inFinancialCashNet
InstrumentsBalance SheetBalance SheetInstrumentsCollateralAmount
(in millions of dollars)
Financial Assets:
Derivatives$27.5  $—  $27.5  $(4.0) $(23.5) $—  
Securities Lending176.4  —  176.4  (176.4) —  —  
Total$203.9  $—  $203.9  $(180.4) $(23.5) $—  
Financial Liabilities:
Derivatives$34.6  $—  $34.6  $(31.3) $—  $3.3  
38



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 4 - Investments - Continued


  December 31, 2018
  Gross Amount     Gross Amount Not  
  of Recognized Gross Amount Net Amount Offset in Balance Sheet  
  Financial Offset in Presented in Financial Cash Net
  Instruments Balance Sheet Balance Sheet Instruments Collateral Amount
  (in millions of dollars)
Financial Assets:  
Derivatives $30.9
 $
 $30.9
 $(6.9) $(24.0) $
Securities Lending 164.1
 
 164.1
 (164.0) (0.1) 
Total $195.0
 $
 $195.0
 $(170.9) $(24.1) $
             
Financial Liabilities:            
Derivatives $38.0
 $
 $38.0
 $(33.2) $
 $4.8
Securities Lending 0.1
 
 0.1
 (0.1) 
 
Total $38.1
 $
 $38.1
 $(33.3) $
 $4.8


Net Investment Income

Net investment income reported in our consolidated statements of income is as follows:
 Three Months Ended June 30 Six Months Ended June 30
 2019 2018 2019 2018
 (in millions of dollars)
Fixed Maturity Securities$564.7
 $565.2
 $1,109.6
 $1,122.3
Derivatives18.0
 16.2
 35.9
 31.6
Mortgage Loans24.9
 29.1
 51.6
 56.4
Policy Loans4.8
 4.6
 9.5
 9.0
Other Long-term Investments       
Equity Securities1
0.6
 0.5
 4.7
 0.3
Private Equity Partnerships2
12.6
 12.7
 14.8
 18.3
Other3.1
 1.5
 2.6
 3.6
Short-term Investments6.7
 6.0
 13.7
 9.6
Gross Investment Income635.4
 635.8
 1,242.4
 1,251.1
Less Investment Expenses7.3
 8.8
 16.3
 18.4
Less Investment Income on Participation Fund Account Assets3.2
 3.4
 6.5
 6.8
Net Investment Income$624.9
 $623.6
 $1,219.6
 $1,225.9

presented below. Certain prior period amounts have been reclassified to conform to the current period presentation.

 Three Months Ended March 31
 20202019
 (in millions of dollars)
Fixed Maturity Securities$539.8  $544.9  
Derivatives20.2  17.9  
Mortgage Loans29.0  26.7  
Policy Loans4.8  4.7  
Other Long-term Investments
Perpetual Preferred Securities1
(17.1) 3.7  
Private Equity Partnerships2
10.4  2.2  
Other3.2  (0.1) 
Short-term Investments6.4  7.0  
Gross Investment Income596.7  607.0  
Less Investment Expenses8.5  9.0  
Less Investment Income on Participation Fund Account Assets3.2  3.3  
Net Investment Income$585.0  $594.7  

1 The net unrealized gain (loss) recognized in net investment income for the three and six months ended June 30, 2019 related to equity securities still held at June 30, 2019 was $(0.1) million and $3.0 million, respectively. The net unrealized loss recognized in net investment income for the three and six months ended June 30, 2018March 31, 2020 related to equityperpetual preferred securities still held at June 30, 2018March 31, 2020 was $0.3 million and $1.3 million, respectively.$17.9 million. The net unrealized gain recognized in net investment income for the three months ended March 31, 2019 related to perpetual preferred securities still held at March 31, 2019 was $3.1 million.

2 The net unrealized gain recognized in net investment income for the three and six months ended June 30,March 31, 2020 related to private equity partnerships still held at March 31, 2020 was $5.4 million. See Note 3 for further discussion of private equity partnerships. The net unrealized loss recognized in net investment income for the three months ended March 31, 2019 related to private equity partnerships still held at June 30,March 31, 2019 was $6.3 million and $3.6 million, respectively. The net unrealized gain recognized in net investment income for the three and six months ended June 30, 2018 related to private equity partnerships still held at June 30, 2018 was $7.1 million and $5.5 million, respectively.$2.7 million.

39



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 4 - Investments - Continued


Realized Investment Gain and Loss

Realized investment gains and losses are as follows:
 Three Months Ended June 30 Six Months Ended June 30
 2019 2018 2019 2018
 (in millions of dollars)
Fixed Maturity Securities       
Gross Gains on Sales$7.9
 $2.6
 $11.2
 $4.6
Gross Losses on Sales(16.9) (3.1) (24.8) (4.5)
Other-Than-Temporary Impairment Loss
 
 
 (1.0)
Mortgage Loans and Other Invested Assets       
Gross Gains on Sales3.0
 0.1
 3.9
 0.1
Gross Losses on Sales
 
 (0.1) 
Impairment Loss
 (0.2) 
 (0.2)
Embedded Derivative in Modified Coinsurance Arrangement(0.8) (2.3) 4.7
 (4.0)
All Other Derivatives(0.9) 
 (0.6) 0.7
Foreign Currency Transactions0.4
 0.3
 (0.5) (0.5)
Net Realized Investment Loss$(7.3) $(2.6) $(6.2) $(4.8)


 Three Months Ended March 31
 20202019
 (in millions of dollars)
Fixed Maturity Securities
Gross Gains on Sales$1.4  $3.3  
Gross Losses on Sales(0.7) (7.9) 
Credit Losses(53.9) —  
Mortgage Loans and Other Invested Assets
Gross Gains on Sales0.3  0.9  
Gross Losses on Sales(0.2) (0.1) 
Credit Losses(2.6) —  
Embedded Derivative in Modified Coinsurance Arrangement(86.9) 5.5  
All Other Derivatives(0.7) 0.3  
Foreign Currency Transactions(0.7) (0.9) 
Net Realized Investment Gain (Loss)$(144.0) $1.1  

40



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 5 - Derivative Financial Instruments

Purpose of Derivatives

We are exposed to certain risks relating to our ongoing business operations. The primary risks managed by using derivative instruments are interest rate risk, risk related to matching duration for our assets and liabilities, foreign currency risk, and credit risk. Historically, we have utilized current and forward interest rate swaps, current and forward currency swaps, forward benchmark interest rate locks, currency forward contracts, forward contracts on specific fixed income securities, and credit default swaps. Transactions hedging interest rate risk are primarily associated with our individual and group long-term care and individual and group disability products. All other product portfolios are periodically reviewed to determine if hedging strategies would be appropriate for risk management purposes. We do not use derivative financial instruments for speculative purposes.

Derivatives designated as cash flow hedges and used to reduce our exposure to interest rate and duration risk are as follows:

Interest rate swaps are used to hedge interest rate risks and to improve the matching of assets and liabilities. An interest rate swap is an agreement in which we agree with other parties to exchange, at specified intervals, the difference between fixed rate and variable rate interest amounts. We use interest rate swaps to hedge the anticipated purchase of fixed maturity securities thereby protecting us from the potential adverse impact of declining interest rates on the associated policy reserves. We also use interest rate swaps to hedge the potential adverse impact of rising interest rates in anticipation of issuing fixed rate long-term debt.

Forward benchmark interest rate locks are used to minimize interest rate risk associated with the anticipated purchase or disposal of fixed maturity securities or debt. A forward benchmark interest rate lock is a derivative contract without an initial investment where we and the counterparty agree to purchase or sell a specific benchmark interest rate fixed maturity bond at a future date at a pre-determined price.

Derivatives designated as fair value hedges and used to reduce our exposure to interest rate and duration risk are as follows:

Interest rate swaps are used to effectively convert certain of our fixed rate securities into floating rate securities which are used to fund our floating rate long-term debt. Under these swap agreements, we receive a variable rate of interest and pay a fixed rate of interest. Additionally, we use interest rate swaps to effectively convert certain fixed rate, long-term debt into floating rate long-term debt. Under these swap agreements, we receive a fixed rate of interest and pay a variable rate of interest.

Derivatives designated as either cash flow or fair value hedges and used to reduce our exposure to foreign currency risk are as follows:

Foreign currency interest rate swaps are used to hedge the currency risk of certain foreign currency-denominated fixed maturity securities owned for portfolio diversification. Under these swap agreements, we agree to pay, at specified intervals, fixed rate foreign currency-denominated principal and interest payments in exchange for fixed rate payments in the functional currency of the operating segment.

Derivatives not designated as hedging instruments and used to reduce our exposure to foreign currency risk, credit losses on securities owned, and interest rate risk are as follows:

Foreign currency interest rate swaps previously designated as hedges were used to hedge the currency risk of certain foreign currency-denominated fixed maturity securities owned for portfolio diversification. These derivatives were effective hedges prior to novation to a new counterparty. In conjunction with the novation, these derivatives were de-designated as hedges. We agree to pay, at specified intervals, fixed rate foreign currency-denominated principal and interest payments in exchange for fixed rate payments in the functional currency of the operating segment. We hold offsetting swaps wherein we agree to pay fixed rate principal and interest payments in the functional currency of the operating segment in exchange for fixed rate foreign currency-denominated payments.


are used to hedge interest rate risks and to improve the matching of assets and liabilities. An interest rate swap is an agreement in which we agree with other parties to exchange, at specified intervals, the difference between fixed rate and variable rate interest amounts. We use interest rate swaps to hedge the anticipated purchase of fixed maturity securities thereby protecting us from the potential adverse impact of declining interest rates on the associated policy reserves. We also use interest rate swaps to hedge the potential adverse impact of rising interest rates in anticipation of issuing fixed rate long-term debt.

Forward benchmark interest rate locks are used to minimize interest rate risk associated with the anticipated purchase or disposal of fixed maturity securities. A forward benchmark interest rate lock is a derivative contract without an initial investment where we and the counterparty agree to purchase or sell a specific benchmark interest rate bond at a future date at a pre-determined price.

41



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 5 - Derivative Financial Instruments - Continued


Credit default swaps are used as economic hedges against credit risk but do not qualify for hedge accounting. A credit default swap is an agreement in which we agree with another party to pay, at specified intervals, a fixed-rate fee in exchange for insurance against a credit event on a specific investment. If a defined credit event occurs, our counterparty may either pay us a net cash settlement, or we may surrender the specific investment to them in exchange for cash equal to the full notional amount of the swap. Credit events typically include events such as bankruptcy, failure to pay, or certain types of debt restructuring.
Derivatives designated as fair value hedges and
Foreign currency forward contracts are used to reduce our exposure to interest rate and duration risk are as follows:

Interest rate swaps are used to effectively convert certain of our fixed rate securities into floating rate securities which are used to fund our floating rate long-term debt. Under these swap agreements, we receive a variable rate of interest and pay a fixed rate of interest. Additionally, we use interest rate swaps to effectively convert certain fixed rate, long-term debt into floating rate long-term debt. Under these swap agreements, we receive a fixed rate of interest and pay a variable rate of interest.

Derivatives designated as either cash flow or fair value hedges and used to reduce our exposure tominimize foreign currency risk are as follows:

Foreign currency interest rate swaps are used to hedge the currency risk of certain foreign currency-denominated fixed maturity securities owned for portfolio diversification. Under these swap agreements, we agree to pay, at specified intervals, fixed rate foreign currency-denominated principal and interest payments in exchange for fixed rate payments in the functional currency of the operating segment.

Derivatives not designated as hedging instruments and used to reduce our exposure torisk. A foreign currency forward is a derivative without an initial investment where we and the counterparty agree to exchange a specific amount of currencies, at a specific exchange rate, on a specific date. We use these forward contracts to hedge the currency risk credit losses on securities owned, and interest rate risk are as follows:arising from foreign-currency denominated securities.

Foreign currency interest rate swaps previously designated as hedges were used to hedge the currency risk of certain foreign currency-denominated fixed maturity securities owned for portfolio diversification. These derivatives were effective hedges prior to novation to a new counterparty. In conjunction with the novation, these derivatives were de-designated as hedges. We agree to pay, at specified intervals, fixed rate foreign currency-denominated principal and interest payments in exchange for fixed rate payments in the functional currency of the operating segment. We hold offsetting swaps wherein we agree to pay fixed rate principal and interest payments in the functional currency of the operating segment in exchange for fixed rate foreign currency-denominated payments.

Credit default swaps are used as economic hedges against credit risk but do not qualify for hedge accounting. A credit default swap is an agreement in which we agree with another party to pay, at specified intervals, a fixed-rate fee in exchange for insurance against a credit event on a specific investment. If a defined credit event occurs, our counterparty may either pay us a net cash settlement or we may surrender the specific investment to them in exchange for cash equal to the full notional amount of the swap. Credit events typically include events such as bankruptcy, failure to pay, or certain types of debt restructuring.

Interest rate swap was used to effectively convert certain of our floating rate, long-term debt into fixed rate long-term debt. Under this swap agreement, we received a variable rate of interest and paid a fixed rate of interest.

Foreign currency forward contractsare used to minimize foreign currency risk. A foreign currency forward is a derivative without an initial investment where we and the counterparty agree to exchange a specific amount of currencies, at a specific exchange rate, on a specific date. We use these forward contracts to hedge the currency risk arising from foreign-currency denominated securities.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 5 - Derivative Financial Instruments - Continued


Derivative Risks

The basic types of risks associated with derivatives are market risk (that the value of the derivative will be adversely impacted by changes in the market, primarily the change in interest and exchange rates) and credit risk (that the counterparty will not perform according to the terms of the contract). The market risk of the derivatives should generally offset the market risk associated with the hedged financial instrument or liability. To help limit the credit exposure of the derivatives, we enter into master netting agreements with our counterparties whereby contracts in a gain position can be offset against contracts in a loss position. We also typically enter into bilateral, cross-collateralization agreements with our counterparties to help limit the credit exposure of the derivatives. These agreements require the counterparty in a loss position to submit acceptable collateral with the other counterparty in the event the net loss position meets or exceeds an agreed upon amount. Credit exposure on derivatives is limited to the value of those contracts in a net gain position, including accrued interest receivable less collateral held. As of March 31, 2020, our credit exposure on derivatives was $1.1 million. At June 30,December 31, 2019, we had no credit exposure on derivatives. As of December 31, 2018, we had $0.9 million0 credit exposure on derivatives. The table below summarizes the nature and amount of collateral received from and posted to our derivative counterparties.

 June 30, 2019 December 31, 2018March 31, 2020December 31, 2019
 (in millions of dollars)(in millions of dollars)
Carrying Value of Collateral Received from Counterparties    Carrying Value of Collateral Received from Counterparties
Cash $22.3
 $24.0
Cash$59.7  $24.0  
Carrying Value of Collateral Posted to Counterparties    Carrying Value of Collateral Posted to Counterparties
Fixed Maturity Securities $30.4
 $33.4
Fixed Maturity Securities$11.7  $28.6  

See Note 4 for further discussion of our master netting agreements.

The majority of our derivative instruments contain provisions that require us to maintain specified issuer credit ratings and financial strength ratings. Should our ratings fall below these specified levels, we would be in violation of the provisions, and our derivatives counterparties could terminate our contracts and request immediate payment. The aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a liability position was $36.2$32.6 million and $38.0$34.6 million at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.

42



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 5 - Derivative Financial Instruments - Continued


Derivative Transactions

The table below summarizes, by notional amounts, the activity for each category of derivatives. The notional amounts represent the basis upon which our counterparty pay and receive amounts are calculated.
 Swaps    
 
Receive
Variable/Pay
Fixed
 
Receive
Fixed/Pay
Fixed
 
Receive
Fixed/Pay
Variable
 Credit Default Forwards Total
 (in millions of dollars)
Balance at March 31, 2018$48.0
 $556.4
 $250.0
 $
 $26.8
 $881.2
Additions
 6.5
 
 
 20.6
 27.1
Terminations48.0
 25.5
 
 
 26.8
 100.3
Balance at June 30, 2018$
 $537.4
 $250.0
 $
 $20.6
 $808.0
            
Balance at December 31, 2017$48.0
 $536.5
 $250.0
 $70.0
 $
 $904.5
Additions
 26.4
 
 
 47.4
 73.8
Terminations48.0
 25.5
 
 70.0
 26.8
 170.3
Balance at June 30, 2018$
 $537.4
 $250.0
 $
 $20.6
 $808.0
            
Balance at March 31, 2019$
 $533.9
 $250.0
 $11.2
 $13.0
 $808.1
Additions
 57.0
 
 
 10.5
 67.5
Terminations
 32.1
 
 
 23.1
 55.2
Foreign Currency
 
 
 (0.3) (0.4) (0.7)
Balance at June 30, 2019$
 $558.8
 $250.0
 $10.9
 $
 $819.7
            
Balance at December 31, 2018$
 $538.2
 $250.0
 $11.0
 $
 $799.2
Additions
 99.6
 
 
 23.5
 123.1
Terminations
 79.0
 
 
 23.1
 102.1
Foreign Currency
 
 
 (0.1) (0.4) (0.5)
Balance at June 30, 2019$
 $558.8
 $250.0
 $10.9
 $
 $819.7

 Swaps  
 Receive
Fixed/Pay
Fixed
Receive
Fixed/Pay
Variable
Credit DefaultForwardsTotal
 (in millions of dollars)
Balance at December 31, 2018$538.2�� $250.0  $11.0  $—  $799.2  
Additions42.6  —  —  13.0  55.6  
Terminations46.9  —  —  —  46.9  
Foreign Currency—  —  0.2  —  0.2  
Balance at March 31, 2019$533.9  $250.0  $11.2  $13.0  $808.1  
Balance at December 31, 2019$611.1  $250.0  $11.4  $8.9  $881.4  
Additions52.0  —  —  —  52.0  
Terminations—  —  —  1.3  1.3  
Foreign Currency—  —  (0.7) —  (0.7) 
Balance at March 31, 2020$663.1  $250.0  $10.7  $7.6  $931.4  

Cash Flow Hedges

As of June 30, 2019March 31, 2020 and December 31, 2018,2019, we had $232.9$213.5 million and $286.4 million, respectively, notional amount of receive fixed, pay fixed, open current and forward foreign currency interest rate swaps to hedge fixed income foreign currency-denominated securities.

As of June 30, 2019,March 31, 2020, we expect to amortize approximately $71.7$75.4 million of net deferred gains on derivative instruments during the next twelve months. This amount will be reclassified from accumulated other comprehensive income into earnings and reported on the same income statement line item as the hedged item. The income statement line items that will be affected by this amortization are net investment income and interest and debt expense. Additional amounts that may be reclassified from accumulated other comprehensive income into earnings to offset the earnings impact of foreign currency translation of hedged items are not estimable.

As of June 30, 2019,March 31, 2020, we are hedging the variability of future cash flows associated with forecasted transactions through the year 2045.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 5 - Derivative Financial Instruments - Continued


Fair Value Hedges

As of June 30, 2019March 31, 2020 and December 31, 2018,2019, we had $177.7$301.4 million and $78.1$249.4 million respectively, notional amount of receive fixed, pay fixed, open current and forward foreign currency interest rate swaps to hedge fixed income foreign currency-denominated securities.

As of June 30, 2019March 31, 2020 and December 31, 2018,2019, we had $250.0 million notional amount of receive fixed, pay variable interest rate swaps to hedge the changes in the fair value of certain fixed rate long-term debt. These swaps effectively convert the associated fixed rate long-term debt into floating rate debt and provide for a better matching of interest rates with our short-term investments, which have frequent interest rate resets similar to a floating rate security.

43



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 5 - Derivative Financial Instruments - Continued
The following table summarizes the carrying amount of hedged assets and liabilities and the related cumulative basis adjustments related to our fair value hedges.hedges:
 Carrying Amount of Hedged Assets (Liabilities) Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)
 June 30, 2019 December 31, 2018 June 30, 2019 December 31, 2018
 (in millions of dollars)
Fixed maturity securities:       
Receive fixed functional currency interest, pay fixed foreign currency interest$120.7
 $56.2
 $(1.9) $(2.7)
        
Long-term Debt(248.1) (244.4) 1.5
 5.1

Carrying Amount of Hedged Assets (Liabilities)Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)
March 31, 2020December 31, 2019March 31, 2020December 31, 2019
(in millions of dollars)
Fixed maturity securities:
Receive fixed functional currency interest, pay fixed foreign currency interest$207.5  $239.4  $(12.1) $1.1  
Long-term Debt$(250.8) $(249.2) $(0.9) $0.6  

For the three and six months ended June 30,March 31, 2020 and March 31, 2019, $1.6$28.8 million and $1.5 million, respectively, of the derivative instruments' gain was excluded from the assessment of hedge effectiveness. For the three and six months ended June 30, 2018, $1.0$0.1 million of the derivative instruments' gainloss, respectively, was excluded from the assessment of hedge effectiveness. There were no0 instances wherein we discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge.

Derivatives not Designated as Hedging Instruments

As of June 30, 2019March 31, 2020 and December 31, 2018,2019, we held $148.2 million and $173.7 million, respectively, notional amount of receive fixed, pay fixed, foreign currency interest rate swaps. These derivatives are not designated as hedges, and as such, changes in fair value related to these derivatives are reported in earnings as a component of net realized investment gain or loss.

As of June 30, 2019March 31, 2020 and December 31, 2018,2019, we held $10.9$10.7 million and $11.0$11.4 million, respectively, notional amount of single name credit default swaps. We entered into these swaps in order to mitigate the credit risk associated with specific securities owned.

As of March 31, 2020 and December 31, 2019, we held $7.6 million and $8.9 million, respectively, notional amount of foreign currency forwards to mitigate the foreign currency risk associated with specific securities owned.

We have an embedded derivative in a modified coinsurance arrangement for which we include in our realized investment gains and losses a calculation intended to estimate the value of the option of our reinsurance counterparty to cancel the reinsurance contract with us. However, neither party can unilaterally terminate the reinsurance agreement except in extreme circumstances resulting from regulatory supervision, delinquency proceedings, or other direct regulatory action. Cash settlements or collateral related to this embedded derivative are not required at any time during the reinsurance contract or at termination of the reinsurance contract. There are no credit-related counterparty triggers, and any accumulated embedded derivative gain or loss reduces to zero over time as the reinsured business winds down.

44



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 5 - Derivative Financial Instruments - Continued


Locations and Amounts of Derivative Financial Instruments

The following tables summarize the location and fair values of derivative financial instruments, as reported in our consolidated balance sheets.
 June 30, 2019
 Derivative Assets Derivative Liabilities
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 (in millions of dollars)
Designated as Hedging Instruments       
Cash Flow Hedges       
Foreign Exchange ContractsOther L-T Investments $19.7
 Other Liabilities $9.7
        
Fair Value Hedges       
Interest Rate SwapsOther L-T Investments 
 Other Liabilities 1.6
Foreign Exchange ContractsOther L-T Investments 7.7
 Other Liabilities 2.5
Total Fair Value Hedges  7.7
   4.1
        
Total Designated as Hedging Instruments  $27.4
   $13.8
        
Not Designated as Hedging Instruments       
Foreign Exchange ContractsOther L-T Investments $
 Other Liabilities $22.4
Embedded Derivative in Modified Coinsurance ArrangementOther L-T Investments 
 Other Liabilities 26.4
Total Not Designated as Hedging Instruments  $
   $48.8

 March 31, 2020
 Derivative AssetsDerivative Liabilities
 Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
(in millions of dollars)
Designated as Hedging Instruments
Cash Flow Hedges
Foreign Exchange ContractsOther L-T Investments$36.0  Other Liabilities$3.2  
Fair Value Hedges
Interest Rate SwapsOther L-T Investments0.9  Other Liabilities—  
Foreign Exchange ContractsOther L-T Investments47.1  Other Liabilities2.9  
Total Fair Value Hedges48.0  2.9  
Total Designated as Hedging Instruments$84.0  $6.1  
Not Designated as Hedging Instruments
Credit Default SwapsOther L-T Investments$1.3  Other Liabilities$—  
ForwardsOther L-T Investments0.4  Other Liabilities—  
Foreign Exchange ContractsOther L-T Investments2.2  Other Liabilities26.5  
Embedded Derivative in Modified Coinsurance ArrangementOther L-T Investments—  Other Liabilities109.7  
Total Not Designated as Hedging Instruments$3.9  $136.2  
45



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 5 - Derivative Financial Instruments - Continued


 December 31, 2019
 Derivative AssetsDerivative Liabilities
 Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
(in millions of dollars)
Designated as Hedging Instruments
Cash Flow Hedges
Foreign Exchange ContractsOther L-T Investments$19.4  Other Liabilities$6.6  
Fair Value Hedges
   Interest Rate SwapsOther L-T Investments—  Other Liabilities0.6  
Foreign Exchange ContractsOther L-T Investments7.6  Other Liabilities5.0  
Total Fair Value Hedges7.6  5.6  
Total Designated as Hedging Instruments$27.0  $12.2  
Not Designated as Hedging Instruments
Credit Default SwapsOther L-T Investments$0.5  Other Liabilities$—  
Foreign Exchange ContractsOther L-T Investments—  Other Liabilities22.4  
Embedded Derivative in Modified Coinsurance ArrangementOther L-T Investments—  Other Liabilities22.8  
Total Not Designated as Hedging Instruments$0.5  $45.2  
 December 31, 2018
 Derivative Assets Derivative Liabilities
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 (in millions of dollars)
Designated as Hedging Instruments       
Cash Flow Hedges       
Foreign Exchange ContractsOther L-T Investments $25.0
 Other Liabilities $7.9
        
Fair Value Hedges       
   Interest Rate SwapsOther L-T Investments 
 Other Liabilities 5.2
Foreign Exchange ContractsOther L-T Investments 5.4
 Other Liabilities 0.4
Total Fair Value Hedges  5.4
   5.6
        
Total Designated as Hedging Instruments  $30.4
   $13.5
        
Not Designated as Hedging Instruments       
Credit Default SwapsOther L-T Investments $0.5
 Other Liabilities $
Foreign Exchange ContractsOther L-T Investments 
 Other Liabilities 24.5
Embedded Derivative in Modified Coinsurance ArrangementOther L-T Investments 
 Other Liabilities 31.1
Total Not Designated as Hedging Instruments  $0.5
   $55.6

46



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 5 - Derivative Financial Instruments - Continued


The following table summarizestables summarize the location of gains and losses of derivative financial instruments designated as hedging instruments, as reported in our consolidated statements of income.

Three Months Ended June 30
2019 2018 Three Months Ended March 31, 2020
Net Investment Income Net Realized Investment Gain (Loss) Interest and Debt Expense Net Investment Income Net Realized Investment Gain (Loss) Interest and Debt ExpenseNet Investment IncomeNet Realized Investment Gain (Loss)Interest and Debt Expense
(in millions of dollars) (in millions of dollars)
Total Income and Expense Presented in the Consolidated Statements of Income of Which Hedged Items are Recorded$624.9
 $(7.3) $42.6
 $623.6
 $(2.6) $42.4
Total Income and Expense Presented in the Consolidated Statements of Income of Which Hedged Items are Recorded$585.0  $(144.0) $45.7  
           
Gain (Loss) on Cash Flow Hedging Relationships           Gain (Loss) on Cash Flow Hedging Relationships
Interest Rate Swaps:           Interest Rate Swaps:
Hedged items75.1
 0.6
 7.7
 76.7
 
 11.4
Hedged items73.0  —  7.3  
Derivatives Designated as Hedging Instruments17.9
 
 0.6
 16.5
 (0.2) 0.5
Derivatives Designated as Hedging Instruments19.2  —  0.6  
Foreign Exchange Contracts           
Foreign Exchange Contracts:Foreign Exchange Contracts:
Hedged items3.7
 1.1
 
 4.7
 0.9
 
Hedged items2.9  —  —  
Derivatives Designated as Hedging Instruments(0.4) (1.0) 
 (0.2) (0.9) 
Derivatives Designated as Hedging Instruments0.9  —  —  
           
Gain (Loss) on Fair Value Hedging Relationships           Gain (Loss) on Fair Value Hedging Relationships
Interest Rate Swaps:           Interest Rate Swaps:
Hedged items
 (2.1) 3.6
 0.3
 0.3
 3.6
Hedged items—  (1.5) 3.6  
Derivatives Designated as Hedging Instruments
 2.1
 0.7
 (0.1) (0.3) 0.5
Derivatives Designated as Hedging Instruments—  1.5  0.1  
Foreign Exchange Contracts           Foreign Exchange Contracts
Hedged items0.5
 1.1
 
 0.3
 (1.1) 
Hedged items1.4  (13.2) —  
Derivatives Designated as Hedging Instruments0.4
 (1.1) 
 0.1
 1.1
 
Derivatives Designated as Hedging Instruments0.8  13.2  —  

47



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 5 - Derivative Financial Instruments - Continued


 Three Months Ended March 31, 2019
Net Investment IncomeNet Realized Investment Gain (Loss)Interest and Debt Expense
 (in millions of dollars)
Total Income and Expense Presented in the Consolidated Statements of Income of Which Hedged Items are Recorded$594.7  $1.1  $42.1  
Gain (Loss) on Cash Flow Hedging Relationships
Interest Rate Swaps:
Hedged items73.0  (3.5) 7.7  
Derivatives Designated as Hedging Instruments17.7  4.1  0.6  
Foreign Exchange Contracts:
Hedged items4.6  0.8  —  
Derivatives Designated as Hedging Instruments(0.1) (0.8) —  
Gain (Loss) on Fair Value Hedging Relationships
Interest Rate Swaps:
Hedged items—  (1.5) 3.6  
Derivatives Designated as Hedging Instruments—  1.5  0.8  
Foreign Exchange Contracts
Hedged items0.5  (0.3) —  
Derivatives Designated as Hedging Instruments0.3  0.3  —  
 Six Months Ended June 30
 2019 2018
 Net Investment Income Net Realized Investment Gain (Loss) Interest and Debt Expense Net Investment Income Net Realized Investment Gain (Loss) Interest and Debt Expense
 (in millions of dollars)
Total Income and Expense Presented in the Consolidated Statements of Income of Which Hedged Items are Recorded$1,219.6
 $(6.2) $84.7
 $1,225.9
 $(4.8) $82.6
            
Gain (Loss) on Cash Flow Hedging Relationships           
Interest Rate Swaps:           
Hedged items147.5
 (2.9) 15.4
 154.5
 0.1
 22.8
Derivatives Designated as Hedging Instruments35.6
 4.0
 1.2
 32.4
 (0.3) 1.1
Foreign Exchange Contracts           
Hedged items8.3
 1.9
 
 9.7
 0.9
 
Derivatives Designated as Hedging Instruments(0.6) (1.7) 
 (0.5) (0.9) 
            
Gain (Loss) on Fair Value Hedging Relationships           
Interest Rate Swaps:           
Hedged items
 (3.6) 7.2
 1.0
 2.2
 7.2
Derivatives Designated as Hedging Instruments
 3.6
 1.5
 (0.5) (2.2) 0.6
Foreign Exchange Contracts           
Hedged items0.9
 0.8
 
 0.4
 (1.4) 
Derivatives Designated as Hedging Instruments0.7
 (0.8) 
 0.1
 1.4
 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 5 - Derivative Financial Instruments - Continued


The following table summarizes the location of gains and losses of derivative financial instruments designated as cash flow hedging instruments, as reported in our consolidated statements of comprehensive income (loss).
  Three Months Ended June 30 Six Months Ended June 30
  2019 2018 2019 2018
  (in millions of dollars)
Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives       
 Interest Rate Swaps and Forwards$(0.1) $0.1
 $(0.1) $(0.1)
 Foreign Exchange Contracts1.6
 6.9
 (10.7) 10.7
Total$1.5
 $7.0
 $(10.8) $10.6

Three Months Ended March 31
 20202019
 (in millions of dollars)
Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives
Foreign Exchange Contracts$19.5  $(12.3) 

The following table summarizes the location of gains and losses on our derivatives not designated as hedging instruments, as reported in our consolidated statements of income.
  Three Months Ended June 30 Six Months Ended June 30
  2019 2018 2019 2018
  (in millions of dollars)
Net Realized Investment Gain (Loss)       
 Credit Default Swaps$(0.1) $
 $(0.6) $
 Interest Rate Swaps
 (0.3) 
 (0.3)
 Foreign Exchange Contracts(0.8) 0.3
 (0.1) 1.0
 Embedded Derivative in Modified Coinsurance Arrangement(0.8) (2.3) 4.7
 (4.0)
Total$(1.7) $(2.3) $4.0
 $(3.3)


 Three Months Ended March 31
 20202019
 (in millions of dollars)
Net Realized Investment Gain (Loss)
Credit Default Swaps$0.8  $(0.5) 
Foreign Exchange Contracts(1.5) 0.7  
Embedded Derivative in Modified Coinsurance Arrangement(86.9) 5.5  
Total$(87.6) $5.7  

48



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 6 - Accumulated Other Comprehensive Loss


Income (Loss)

Components of our accumulated other comprehensive income (loss), after tax, and related changes are as follows:
   Net Unrealized Gain (Loss) on Securities Net Gain on Hedges Foreign Currency Translation Adjustment Unrecognized Pension and Postretirement Benefit Costs Total
   (in millions of dollars)
Balance at March 31, 2019$(0.1) $230.1
 $(287.9) $(444.4) $(502.3)
 Other Comprehensive Income (Loss) Before Reclassifications 280.6
 0.9
 (19.7) 1.0
 262.8
 Amounts Reclassified from Accumulated Other Comprehensive Income or Loss 6.4
 (13.0) 
 3.6
 (3.0)
 Net Other Comprehensive Income (Loss) 287.0
 (12.1) (19.7) 4.6
 259.8
Balance at June 30, 2019$286.9
 $218.0
 $(307.6) $(439.8) $(242.5)
            
Balance at March 31, 2018$356.1
 $273.5
 $(207.0) $(505.0) $(82.4)
 Other Comprehensive Income (Loss) Before Reclassifications (131.7) 4.8
 (61.8) 2.0
 (186.7)
 Amounts Reclassified from Accumulated Other Comprehensive Income or Loss 0.1
 (11.5) 
 4.3
 (7.1)
 Net Other Comprehensive Income (Loss) (131.6) (6.7) (61.8) 6.3
 (193.8)
Balance at June 30, 2018$224.5
 $266.8
 $(268.8) $(498.7) $(276.2)
           
Balance at December 31, 2018$(312.4) $250.6
 $(305.2) $(447.2) $(814.2)
 Other Comprehensive Income (Loss) Before Reclassifications 586.0
 (3.8) (2.4) 0.2
 580.0
 Amounts Reclassified from Accumulated Other Comprehensive Income or Loss 13.3
 (28.8) 
 7.2
 (8.3)
 Net Other Comprehensive Income (Loss) 599.3
 (32.6) (2.4) 7.4
 571.7
Balance at June 30, 2019$286.9
 $218.0
 $(307.6) $(439.8) $(242.5)
            
Balance at December 31, 2017$607.8
 $282.3
 $(254.5) $(508.1) $127.5
 Adjustment to Adopt Accounting Standard Update - Note 2 (17.5) 
 
 
 (17.5)
 Other Comprehensive Income (Loss) Before Reclassifications (366.5) 7.7
 (14.3) 0.8
 (372.3)
 Amounts Reclassified from Accumulated Other Comprehensive Income or Loss 0.7
 (23.2) 
 8.6
 (13.9)
 Net Other Comprehensive Income (Loss) (365.8) (15.5) (14.3) 9.4
 (386.2)
Balance at June 30, 2018$224.5
 $266.8
 $(268.8) $(498.7) $(276.2)

Net Unrealized Gain (Loss) on SecuritiesNet Gain on HedgesForeign Currency Translation AdjustmentUnrecognized Pension and Postretirement Benefit CostsTotal
(in millions of dollars)
Balance at December 31, 2019$615.9  $187.8  $(281.6) $(484.8) $37.3  
Other Comprehensive Income (Loss) Before Reclassifications(263.2) 37.7  (63.6) 3.1  (286.0) 
Amounts Reclassified from Accumulated Other Comprehensive Income or Loss42.6  (14.9) —  3.9  31.6  
Net Other Comprehensive Income (Loss)(220.6) 22.8  (63.6) 7.0  (254.4) 
Balance at March 31, 2020$395.3  $210.6  $(345.2) $(477.8) $(217.1) 
Balance at December 31, 2018  $(312.4) $250.6  $(305.2) $(447.2) $(814.2) 
Other Comprehensive Income (Loss) Before Reclassifications305.4  (4.7) 17.3  (0.8) 317.2  
Amounts Reclassified from Accumulated Other Comprehensive Income or Loss6.9  (15.8) —  3.6  (5.3) 
Net Other Comprehensive Income (Loss)312.3  (20.5) 17.3  2.8  311.9  
Balance at March 31, 2019$(0.1) $230.1  $(287.9) $(444.4) $(502.3) 

The net unrealized gain (loss) on securities consists of the following components:

March 31December 31
20202019Change
(in millions of dollars)
Fixed Maturity Securities$4,261.2  $6,364.4  $(2,103.2) 
Deferred Acquisition Costs(37.4) (62.7) 25.3  
Reserves for Future Policy and Contract Benefits(3,899.5) (5,803.1) 1,903.6  
Reinsurance Recoverable322.7  424.7  (102.0) 
Income Tax(251.7) (307.4) 55.7  
Total$395.3  $615.9  $(220.6) 


March 31December 31
20192018Change
(in millions of dollars)
Fixed Maturity Securities$4,308.4  $2,736.5  $1,571.9  
Deferred Acquisition Costs(42.6) (27.9) (14.7) 
Reserves for Future Policy and Contract Benefits(4,451.0) (3,220.3) (1,230.7) 
Reinsurance Recoverable328.5  261.4  67.1  
Income Tax(143.4) (62.1) (81.3) 
Total$(0.1) $(312.4) $312.3  
49



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 6 - Accumulated Other Comprehensive LossIncome (Loss) - Continued


Amounts reclassified from accumulated other comprehensive income (loss) were recognized in our consolidated statements of income as follows:
The net unrealized gain (loss) on securities consists of the following components:
Three Months Ended March 31
20202019
(in millions of dollars)
Net Unrealized Gain (Loss) on Securities
Net Realized Investment Gain (Loss)
Loss on Sales of Securities$—  $(8.7) 
Credit Losses on Fixed Maturity Securities(53.9) —  
(53.9) (8.7) 
Income Tax Benefit(11.3) (1.8) 
Total$(42.6) $(6.9) 
Net Gain on Hedges
Net Investment Income
Gain on Interest Rate Swaps and Forwards$18.8  $17.4  
Gain (Loss) on Foreign Exchange Contracts0.5  (0.1) 
Net Realized Investment Gain (Loss)
Gain on Interest Rate Swaps—  4.0  
Loss on Foreign Exchange Contracts—  (0.8) 
Interest and Debt Expense
Loss on Interest Rate Swaps(0.6) (0.5) 
18.7  20.0  
Income Tax Expense3.8  4.2  
Total$14.9  $15.8  
Unrecognized Pension and Postretirement Benefit Costs
Other Expenses
Amortization of Net Actuarial Loss$(5.0) $(4.7) 
Amortization of Prior Service Credit0.1  0.1  
(4.9) (4.6) 
Income Tax Benefit(1.0) (1.0) 
Total$(3.9) $(3.6) 
        Change at June 30, 2019
  June 30 March 31 December 31 Three Months Six Months
  2019 2019 2018 Ended Ended
  (in millions of dollars)
Fixed Maturity Securities $5,635.4
 $4,308.4
 $2,736.5
 $1,327.0
 $2,898.9
Deferred Acquisition Costs (57.0) (42.6) (27.9) (14.4) (29.1)
Reserves for Future Policy and Contract Benefits (5,455.7) (4,451.0) (3,220.3) (1,004.7) (2,235.4)
Reinsurance Recoverable 385.7
 328.5
 261.4
 57.2
 124.3
Income Tax (221.5) (143.4) (62.1) (78.1) (159.4)
Total $286.9
 $(0.1) $(312.4) $287.0
 $599.3

        Change at June 30, 2018
  June 30 March 31 January 1 Three Months Six Months
  2018 2018 2018 Ended Ended
  (in millions of dollars)
Fixed Maturity Securities $3,543.7
 $4,348.2
 $5,665.2
 $(804.5) $(2,121.5)
Deferred Acquisition Costs (34.1) (41.2) (51.4) 7.1
 17.3
Reserves for Future Policy and Contract Benefits (3,367.1) (4,030.1) (5,094.7) 663.0
 1,727.6
Reinsurance Recoverable 288.1
 321.0
 375.8
 (32.9) (87.7)
Income Tax (206.1) (241.8) (304.6) 35.7
 98.5
Total $224.5
 $356.1
 $590.3
 $(131.6) $(365.8)
50




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 6 - Accumulated Other Comprehensive Loss - Continued


Amounts reclassified from accumulated other comprehensive loss were recognized in our consolidated statements of income as follows:
   Three Months Ended June 30 Six Months Ended June 30
   2019 2018 2019 2018
   (in millions of dollars)
Net Unrealized Gain (Loss) on Securities       
 Net Realized Investment Loss       
  Net Gain (Loss) on Sales of Securities and Other Invested Assets$(8.1) $(0.1) $(16.8) $0.1
  Other-Than-Temporary Impairment Loss
 
 
 (1.0)
   (8.1) (0.1) (16.8) (0.9)
 Income Tax Benefit(1.7) 
 (3.5) (0.2)
Total$(6.4) $(0.1) $(13.3) $(0.7)
          
Net Gain on Hedges       
 Net Investment Income       
  Gain on Interest Rate Swaps and Forwards$17.6
 $16.1
 $35.0
 $31.7
  Loss on Foreign Exchange Contracts(0.1) (0.3) (0.2) (0.6)
 Net Realized Investment Loss       
  Gain on Interest Rate Swaps0.4
 0.3
 4.4
 0.2
  Loss on Foreign Exchange Contracts(1.0) (0.9) (1.8) (0.9)
 Interest and Debt Expense       
  Loss on Interest Rate Swaps(0.5) (0.5) (1.0) (1.0)
   16.4
 14.7
 36.4
 29.4
 Income Tax Expense3.4
 3.2
 7.6
 6.2
Total$13.0
 $11.5
 $28.8
 $23.2
          
Unrecognized Pension and Postretirement Benefit Costs       
 Other Expenses       
  Amortization of Net Actuarial Loss$(4.6) $(5.6) $(9.3) $(11.2)
  Amortization of Prior Service Credit
 
 0.1
 0.1
   (4.6) (5.6) (9.2) (11.1)
 Income Tax Benefit(1.0) (1.3) (2.0) (2.5)
Total$(3.6) $(4.3) $(7.2) $(8.6)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 7 - Liability for Unpaid Claims and Claim Adjustment Expenses


Changes in the liability for unpaid claims and claim adjustment expenses are as follows:
 2019 2018
 (in millions of dollars)
Balance at January 1$23,149.0
 $23,222.0
   Less Reinsurance Recoverable2,227.3
 2,182.0
Net Balance at January 120,921.7
 21,040.0
    
Incurred Related to   
   Current Year3,101.9
 2,943.0
   Prior Years   
      Interest545.5
 552.1
      All Other Incurred(202.2) (230.9)
      Foreign Currency(8.5) (44.7)
Total Incurred3,436.7
 3,219.5
    
Paid Related to   
   Current Year(973.4) (904.3)
   Prior Years(2,542.1) (2,498.4)
Total Paid(3,515.5) (3,402.7)
    
Net Balance at June 3020,842.9
 20,856.8
   Plus Reinsurance Recoverable2,247.7
 2,188.4
Balance at June 30$23,090.6
 $23,045.2

20202019
(in millions of dollars)
Balance at January 1$23,076.7  $23,149.0  
   Less Reinsurance Recoverable2,246.8  2,227.3  
Net Balance at January 120,829.9  20,921.7  
Incurred Related to
   Current Year1,605.9  1,556.8  
   Prior Years
      Interest271.9  280.0  
      All Other Incurred(126.7) (130.3) 
      Foreign Currency(127.6) 41.1  
Total Incurred1,623.5  1,747.6  
Paid Related to
   Current Year(368.0) (328.7) 
   Prior Years(1,453.7) (1,439.5) 
Total Paid(1,821.7) (1,768.2) 
Net Balance at March 3120,631.7  20,901.1  
   Plus Reinsurance Recoverable2,260.7  2,241.0  
Balance at March 31$22,892.4  $23,142.1  

The majority of the net balances are related to disability claims with long-tail payouts on which interest earned on assets backing liabilities is an integral part of pricing and reserving. Interest accrued on prior year reserves has been calculated on the opening reserve balance less one-half of the period's claim payments relative to prior years at our average reserve discount rate for the respective periods.

"Incurred Related to Prior Years - All Other Incurred" shown in the preceding chart is primarily impacted by the level of claim resolutions in the period relative to the long-term expectations reflected in the reserves. Our claim resolution rate assumption used in determining reserves is our expectation of the resolution rate we will experience over the life of the block of business and will vary from actual experience in any one period, both favorably and unfavorably.


51



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 7 - Liability for Unpaid Claims and Claim Adjustment Expenses - Continued


Reconciliation

A reconciliation of policy and contract benefits and reserves for future policy and contract benefits as reported in our consolidated balance sheets to the liability for unpaid claims and claim adjustment expenses is as follows:

June 30March 31
2019 201820202019
(in millions of dollars)(in millions of dollars)
Policy and Contract Benefits$1,751.4
 $1,625.4
Policy and Contract Benefits$1,760.3  $1,708.6  
Reserves for Future Policy and Contract Benefits47,138.3
 43,959.4
Reserves for Future Policy and Contract Benefits45,706.5  46,109.4  
Total48,889.7
 45,584.8
Total47,466.8  47,818.0  
Less:   Less:
Life Reserves for Future Policy and Contract Benefits8,335.1
 8,276.9
Life Reserves for Future Policy and Contract Benefits8,428.5  8,315.5  
Accident and Health Active Life Reserves12,008.3
 10,895.6
Accident and Health Active Life Reserves12,246.4  11,909.4  
Adjustment Related to Unrealized Investment Gains and Losses5,455.7
 3,367.1
Adjustment Related to Unrealized Investment Gains and Losses3,899.5  4,451.0  
Liability for Unpaid Claims and Claim Adjustment Expenses$23,090.6
 $23,045.2
Liability for Unpaid Claims and Claim Adjustment Expenses$22,892.4  $23,142.1  

The adjustment related to unrealized investment gains and losses reflects the changes that would be necessary to policyholder liabilities if the unrealized investment gains and losses related to the corresponding available-for-sale securities had been realized. Changes in this adjustment are reported as a component of other comprehensive income or loss.

52



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 8 - Segment Information


We have three3 principal operating business segments: Unum US, Unum International, and Colonial Life. Our other segments are Closed Block and Corporate.

Segment information is as follows:

 Three Months Ended June 30 Six Months Ended June 30
 2019 2018 2019 2018
 (in millions of dollars)
Premium Income       
Unum US       
Group Disability       
Group Long-term Disability$457.2
 $437.4
 $910.1
 $878.6
Group Short-term Disability187.6
 171.0
 376.3
 347.3
Group Life and Accidental Death & Dismemberment       
Group Life420.0
 391.1
 834.4
 790.3
Accidental Death & Dismemberment41.7
 38.6
 82.7
 77.3
Supplemental and Voluntary       
Individual Disability108.5
 104.7
 219.2
 209.6
Voluntary Benefits228.6
 223.9
 463.0
 453.7
Dental and Vision60.9
 49.6
 120.7
 98.3
 1,504.5
 1,416.3
 3,006.4
 2,855.1
Unum International       
Group Long-term Disability89.6
 89.7
 177.5
 180.5
Group Life28.8
 27.9
 56.0
 56.5
Supplemental40.2
 21.3
 79.1
 41.5
 158.6
 138.9
 312.6
 278.5
Colonial Life       
Accident, Sickness, and Disability242.4
 228.6
 484.6
 459.9
Life88.3
 81.5
 175.9
 162.5
Cancer and Critical Illness90.2
 85.3
 179.7
 171.3
 420.9
 395.4
 840.2
 793.7
Closed Block       
Individual Disability94.4
 106.9
 192.5
 216.3
Long-term Care162.6
 161.5
 325.6
 322.8
All Other2.1
 2.0
 4.5
 4.6
 259.1
 270.4
 522.6
 543.7
Total Premium Income$2,343.1
 $2,221.0
 $4,681.8
 $4,471.0
Certain prior year amounts were reclassified to conform to current year presentation.

Three Months Ended March 31
20202019
(in millions of dollars)
Premium Income
Unum US
Group Disability
Group Long-term Disability$463.0  $452.9  
Group Short-term Disability203.2  188.7  
Group Life and Accidental Death & Dismemberment
Group Life414.5  414.4  
Accidental Death & Dismemberment41.7  41.0  
Supplemental and Voluntary
Individual Disability109.5  110.7  
Voluntary Benefits230.4  234.4  
Dental and Vision65.4  59.8  
1,527.7  1,501.9  
Unum International
Unum UK
Group Long-term Disability90.8  87.9  
Group Life30.9  27.2  
Supplemental23.9  21.7  
Unum Poland19.0  17.2  
164.6  154.0  
Colonial Life
Accident, Sickness, and Disability249.3  242.2  
Life93.8  87.6  
Cancer and Critical Illness91.6  89.5  
434.7  419.3  
Closed Block
Long-term Care164.8  163.0  
Individual Disability77.0  98.1  
All Other2.6  2.4  
244.4  263.5  
Total Premium Income$2,371.4  $2,338.7  

53



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 8 - Segment Information - Continued


Unum USUnum InternationalColonial LifeClosed BlockCorporateTotal
(in millions of dollars)
Three Months Ended March 31, 2020
Premium Income$1,527.7  $164.6  $434.7  $244.4  $—  $2,371.4  
Net Investment Income179.6  26.5  37.7  336.1  5.1  585.0  
Other Income40.2  —  0.3  18.2  —  58.7  
Adjusted Operating Revenue$1,747.5  $191.1  $472.7  $598.7  $5.1  $3,015.1  
Adjusted Operating Income (Loss)$261.8  $19.4  $81.1  $29.7  $(45.9) $346.1  
Three Months Ended March 31, 2019
Premium Income$1,501.9  $154.0  $419.3  $263.5  $—  $2,338.7  
Net Investment Income182.1  24.8  36.9  346.6  4.3  594.7  
Other Income34.5  —  0.6  18.0  —  53.1  
Adjusted Operating Revenue$1,718.5  $178.8  $456.8  $628.1  $4.3  $2,986.5  
Adjusted Operating Income (Loss)$252.3  $29.1  $85.2  $31.0  $(45.4) $352.2  
 Unum US Unum International Colonial Life Closed Block Corporate Total
 (in millions of dollars)
Three Months Ended June 30, 2019           
Premium Income$1,504.5
 $158.6
 $420.9
 $259.1
 $
 $2,343.1
Net Investment Income184.1
 44.8
 37.2
 354.5
 4.3
 624.9
Other Income36.8
 0.3
 0.7
 16.5
 1.7
 56.0
Adjusted Operating Revenue$1,725.4
 $203.7
 $458.8
 $630.1
 $6.0
 $3,024.0
            
Adjusted Operating Income (Loss)$254.3
 $30.7
 $84.4
 $33.7
 $(43.8) $359.3
            
Three Months Ended June 30, 2018           
Premium Income$1,416.3
 $138.9
 $395.4
 $270.4
 $
 $2,221.0
Net Investment Income196.5
 32.1
 40.2
 345.6
 9.2
 623.6
Other Income28.8
 
 0.3
 18.9
 0.3
 48.3
Adjusted Operating Revenue$1,641.6
 $171.0
 $435.9
 $634.9
 $9.5
 $2,892.9
            
Adjusted Operating Income (Loss)$251.1
 $27.6
 $84.6
 $29.6
 $(35.5) $357.4

March 31December 31
20202019
(in millions of dollars)
Assets
Unum US$17,791.5  $18,586.3  
Unum International3,515.1  3,869.1  
Colonial Life4,428.0  4,629.0  
Closed Block36,004.3  37,008.7  
Corporate3,597.0  2,920.3  
Total Assets$65,335.9  $67,013.4  
 Unum US Unum International Colonial Life Closed Block Corporate Total
 (in millions of dollars)
Six Months Ended June 30, 2019           
Premium Income$3,006.4
 $312.6
 $840.2
 $522.6
 $
 $4,681.8
Net Investment Income366.2
 69.6
 74.1
 701.1
 8.6
 1,219.6
Other Income71.3
 0.3
 1.3
 34.5
 1.7
 109.1
Adjusted Operating Revenue$3,443.9
 $382.5
 $915.6
 $1,258.2
 $10.3
 $6,010.5
            
Adjusted Operating Income (Loss)$506.6
 $59.8
 $169.6
 $64.7
 $(89.2) $711.5

           
Six Months Ended June 30, 2018           
Premium Income$2,855.1
 $278.5
 $793.7
 $543.7
 $
 $4,471.0
Net Investment Income390.7
 59.7
 77.5
 683.3
 14.7
 1,225.9
Other Income57.8
 
 0.6
 37.9
 1.5
 97.8
Adjusted Operating Revenue$3,303.6
 $338.2
 $871.8
 $1,264.9
 $16.2
 $5,794.7
            
Adjusted Operating Income (Loss)$495.0
 $57.4
 $165.6
 $58.5
 $(75.8) $700.7


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 8 - Segment Information - Continued


 June 30 December 31
 2019 2018
 (in millions of dollars)
Assets   
Unum US$18,438.3
 $17,510.9
Unum International3,769.4
 3,426.8
Colonial Life4,531.0
 4,237.9
Closed Block36,196.7
 34,527.6
Corporate2,908.3
 2,172.4
Total Assets$65,843.7
 $61,875.6


We measure and analyze our segment performance on the basis of "adjusted operating revenue" and "adjusted operating income" or "adjusted operating loss", which differ from total revenue and income before income tax as presented in our consolidated statements of income due to the exclusion of net realized investment gains and losses as specified in the reconciliations below. We believe adjusted operating revenue and adjusted operating income or loss are better performance measures and better indicators of the revenue and profitability and underlying trends in our business. These performance measures are in accordance with GAAP guidance for segment reporting, but they should not be viewed as a substitute for total revenue, income before income tax, or net income. 

Realized investment gains or losses depend on market conditions and do not necessarily relate to decisions regarding the underlying business of our segments. Our investment focus is on investment income to support our insurance liabilities as opposed to the generation of realized investment gains or losses. Although we may experience realized investment gains or losses which will affect future earnings levels, a long-term focus is necessary to maintain profitability over the life of the business since our underlying business is long-term in nature, and we need to earn the interest rates assumed in calculating our liabilities.

54



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 8 - Segment Information - Continued
We may at other times exclude certain other items from our discussion of financial ratios and metrics in order to enhance the understanding and comparability of our operational performance and the underlying fundamentals. We exclude these items as we believe them to be infrequent or unusual in nature, but this exclusion is not an indication that similar items may not recur and does not replace net income or net loss as a measure of our overall profitability.

A reconciliation of total revenue to "adjusted operating revenue" and income before income tax to "adjusted operating income" is as follows:
 Three Months Ended June 30 Six Months Ended June 30
 2019 2018 2019 2018
 (in millions of dollars)
Total Revenue$3,016.7
 $2,890.3
 $6,004.3
 $5,789.9
Excluding:       
Net Realized Investment Loss(7.3) (2.6) (6.2) (4.8)
Adjusted Operating Revenue$3,024.0
 $2,892.9
 $6,010.5
 $5,794.7
        
Income Before Income Tax$352.0
 $354.8
 $705.3
 $695.9
Excluding:       
Net Realized Investment Loss(7.3) (2.6) (6.2) (4.8)
Adjusted Operating Income$359.3
 $357.4
 $711.5
 $700.7

Three Months Ended March 31
20202019
(in millions of dollars)
Total Revenue  $2,871.1  $2,987.6  
Excluding:  
Net Realized Investment Gain (Loss) (144.0) 1.1  
Adjusted Operating Revenue  $3,015.1  $2,986.5  
Income Before Income Tax$202.1  $353.3  
Excluding:
Net Realized Investment Gain (Loss) (144.0) 1.1  
Adjusted Operating Income$346.1  $352.2  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 9 - Employee Benefit Plans


Defined Benefit Pension and Other Postretirement Benefit (OPEB) Plans

We sponsor several defined benefit pension and OPEB plans for our employees, including non-qualified pension plans. The U.S. qualified and non-qualified defined benefit pension plans comprise the majority of our total benefit obligation and benefit cost. We maintain a separate defined benefit plan for eligible employees in our U.K. operation. The U.S. defined benefit pension plans were closed to new entrants on December 31, 2013, the OPEB plan was closed to new entrants on December 31, 2012, and the U.K. plan was closed to new entrants on December 31, 2002.

U.S. Pension Plan Annuity Purchase

On January 2, 2020, we purchased a group annuity contract which transferred a portion of our U.S. qualified defined benefit pension plan obligation to a third party. Under the transaction, which was funded with plan assets, we transferred the responsibility for pension benefits and annuity administration for approximately 600 retirees, or their beneficiaries, receiving between $350 and $500 in monthly benefit payments from the plan. This transfer reduced our 2020 U.S. qualified benefit pension plan obligation by approximately $44.0 million.
55



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 9 - Employee Benefit Plans - Continued
The following table provides the components of the net periodic benefit cost (credit) for the defined benefit pension and OPEB plans.
 Three Months Ended June 30
 Pension Benefits    
 U.S. Plans U.K. Plan OPEB
 2019 2018 2019 2018 2019 2018
 (in millions of dollars)
Service Cost$2.7
 $2.3
 $
 $
 $
 $
Interest Cost20.9
 20.0
 1.6
 1.6
 1.3
 1.3
Expected Return on Plan Assets(24.9) (26.2) (2.3) (2.3) (0.2) (0.2)
Amortization of:           
   Net Actuarial Loss (Gain)5.0
 5.5
 0.2
 0.1
 (0.6) 
Total$3.7
 $1.6
 $(0.5) $(0.6) $0.5
 $1.1


Three Months Ended March 31
 Pension Benefits  
 U.S. PlansU.K. PlanOPEB
 202020192020201920202019
(in millions of dollars)
Service Cost$2.8  $2.7  $—  $—  $—  $—  
Interest Cost18.2  20.8  1.2  1.5  1.0  1.3  
Expected Return on Plan Assets(26.7) (24.8) (2.4) (2.2) (0.1) (0.1) 
Amortization of:
   Net Actuarial Loss (Gain)4.7  5.1  0.3  0.2  —  (0.6) 
   Prior Service Credit—  —  —  —  (0.1) (0.1) 
Total Net Periodic Benefit Cost$(1.0) $3.8  $(0.9) $(0.5) $0.8  $0.5  
 Six Months Ended June 30
 Pension Benefits    
 U.S. Plans U.K. Plan OPEB
 2019 2018 2019 2018 2019 2018
 (in millions of dollars)
Service Cost$5.4
 $4.6
 $
 $
 $
 $
Interest Cost41.7
 39.9
 3.1
 3.1
 2.6
 2.5
Expected Return on Plan Assets(49.7) (52.3) (4.5) (4.7) (0.3) (0.3)
Amortization of:           
   Net Actuarial Loss (Gain)10.1
 10.9
 0.4
 0.3
 (1.2) 
   Prior Service Credit
 
 
 
 (0.1) (0.1)
Total$7.5
 $3.1
 $(1.0) $(1.3) $1.0
 $2.1

The service cost component of net periodic pension and postretirement benefit cost is included as a component of compensation expense in our consolidated statements of income. All other components of net periodic pension and postretirement benefit cost are included in other expenses.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 10 - Stockholders' Equity and Earnings Per Common Share


Earnings Per Common Share

Net income per common share is determined as follows:
 Three Months Ended June 30 Six Months Ended June 30
 2019 2018 2019 2018
 (in millions of dollars, except share data)
Numerator       
Net Income$281.2
 $285.5
 $562.1
 $559.0
        
Denominator (000s)       
Weighted Average Common Shares - Basic211,068.7
 220,776.7
 212,672.8
 221,335.7
Dilution for Assumed Exercises of Stock Options and Nonvested Stock Awards43.9
 286.0
 88.3
 484.5
Weighted Average Common Shares - Assuming Dilution211,112.6
 221,062.7
 212,761.1
 221,820.2
        
Net Income Per Common Share       
Basic$1.33
 $1.29
 $2.64
 $2.53
Assuming Dilution$1.33
 $1.29
 $2.64
 $2.52


 Three Months Ended March 31
 20202019
 (in millions of dollars, except share data)
Numerator
Net Income$161.0  $280.9  
Denominator (000s)
Weighted Average Common Shares - Basic203,306.0  214,297.1  
Dilution for Assumed Exercises of Stock Options and Nonvested Stock Awards49.7  132.6  
Weighted Average Common Shares - Assuming Dilution203,355.7  214,429.7  
Net Income Per Common Share
Basic$0.79  $1.31  
Assuming Dilution$0.79  $1.31  

We compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding for the period. In computing earnings per share assuming dilution, we include potential common shares that are dilutive (those that reduce earnings per share). We use the treasury stock method to account for the effect of outstanding stock options, nonvested restricted stock units, and nonvested performance share units on the computation of diluted earnings per share. Under this method, thesethe potential common shares from stock options and nonvested restricted stock units will each have a dilutive effect, as individually measured, when the average market price of Unum Group common stock during the period exceeds the exercise price of the stock options and the grant price of the nonvested restricted stock units and the nonvested performance share units. The outstanding stock options have exercise prices ranging from $23.35 to $24.25, the nonvested restricted stock units have grant prices ranging from $33.28 to $55.26, and the nonvested performance share units have grant prices ranging from $37.67 to $49.86.

In computing earnings per share assuming dilution, only potential common shares that are dilutive (those that reduce earnings per share) are included. Potential common shares excluded in the computation of diluted earnings per share because the impact would be antidilutive, based on then current market prices, approximated 1.2 million potential common shares for both the three and six months ended June 30, 2019. There were approximately 0.7 million and 0.4 million potential common shares that were antidilutive for the three and six months ended June 30, 2018, respectively.

Common Stock

During the second quarter of 2019, our board of directors authorized the repurchase of up to $750.0 million of Unum Group's outstanding common stock through November 23, 2020. This authorization replaced the previous authorization of $750.0 million that was scheduled to expire on November 24, 2019. The remaining repurchase amount under the new program was $716.2 million at June 30, 2019.

56



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 10 - Stockholders' Equity and Earnings Per Common Share - Continued

options have an exercise price of $24.25 and the nonvested restricted stock units have grant prices ranging from $12.45 to $55.26. Potential common shares from performance based share units will have a dilutive effect as the attainment of performance conditions is progressively achieved during the vesting period. Potential common shares not included in the computation of diluted earnings per share because the impact would be antidilutive, approximated 1.1 million and 1.3 million, for the three months ended March 31, 2020 and 2019, respectively.

Common Stock

During the second quarter of 2019, our board of directors authorized the repurchase of up to $750.0 million of Unum Group's outstanding common stock through November 23, 2020. This authorization replaced the previous authorization of $750.0 million that was scheduled to expire on November 24, 2019. The remaining repurchase amount under the new program was $516.2 million at March 31, 2020.

Common stock repurchases which are accounted for using the cost method and classified as treasury stock until otherwise retired, were as follows:
 Three Months Ended June 30 Six Months Ended June 30
 2019 2018 2019 2018
 (in millions)
Shares Repurchased2.9
 2.5
 5.6
 4.4
Cost of Shares Repurchased1
$100.2
 $100.1
 $200.2
 $200.3


1 Includesretired. During the first quarter of 2019, we repurchased 2.7 million shares at a cost of $100.0 million, which included commissions of $0.2 million for the three months ended June 30, 2019 and a de minimis amountamount. We did not repurchase shares during the first quarter of commissions for the three months ended June 30, 2018. For the six months ended June 30, 2019 and 2018, these amounts included commissions of $0.2 million, respectively.2020.

Preferred Stock

Unum Group has 25.0 million shares of preferred stock authorized with a par value of $0.10 per share. NoNaN preferred stock has been issued to date.

Note 11 - Commitments and Contingent Liabilities

Contingent Liabilities
Contingent Liabilities
We are a defendant in a number of litigation matters that 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 our compliance with applicable insurance and other laws and regulations. Given the complexity and scope of our 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 if noted in connection with specific matters.

In some of these matters, no specified amount is sought. In others, very large or indeterminate amounts, including punitive and treble damages, are asserted. There is a wide variation of pleading practice permitted in the United States courts with respect to requests for monetary damages, including some courts in which no specified amount is required and others which allow the plaintiff to state only that the amount sought is sufficient to invoke the jurisdiction of that court. Further, some jurisdictions permit plaintiffs to allege damages well in excess of reasonably possible verdicts. Based on our extensive experience and that of others in the industry with respect to litigating or resolving claims through settlement over an extended period of time, we believe that the monetary damages asserted in a lawsuit or claim bear little relation to the merits of the case, or the likely disposition value. Therefore, the specific monetary relief sought is not stated.
 
Unless indicated otherwise in the descriptions below, reserves have not been established for litigation and contingencies. An estimated loss is accrued when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
 
Claims Handling Matters
 
We and our insurance subsidiaries, in the ordinary course of our business, are engaged in claim litigation where disputes arise as a result of a denial or termination of benefits. Most typically these 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 our general claim litigation, we maintain reserves based on experience to satisfy judgments and settlements in the normal course. We expect that the ultimate liability, if any, with respect to general claim litigation, after consideration of the reserves maintained, will not be material to our consolidated financial condition. 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 our consolidated results of operations in a period, depending on the results of operations for the particular period.
57



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019March 31, 2020
Note 11 - Commitments and Contingent Liabilities - Continued


damages could, from time to time, have a material adverse effect on our consolidated results of operations in a period, depending on the results of operations for the particular period.
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, we monitor these cases closely and defend ourselves appropriately where these allegations are made.

Miscellaneous Matters

Similar to other insurers, we were the subject of an examination by a third party acting on behalf of a number of state treasurers concerning our compliance with the unclaimed property laws of the participating states. We cooperated fully with this examination and in the fourth quarter of 2017, we started the process to reach a Global Resolution Agreement with the third party regarding settlement of the examination, which we finalized in January of 2018. Under the terms of the agreement, the third party acting on behalf of the signatory states compared insured data to the Social Security Administration's Death Master File to identify deceased insureds and contract holders where a valid claim has not been made. During the fourth quarter of 2017, we established reserves which reflect our estimate of the liability expected to be paid as we execute on the terms of the settlement. We also are cooperating with a Delaware Market Conduct examination involving the same issue, which is currently inactive. The legal and regulatory environment around unclaimed death benefits continues to evolve. It is possible that the current settlement and/or similar investigations by other state jurisdictions may result in payments to beneficiaries, the payment of abandoned funds under state law, and/or administrative penalties, the total of which may be in excess of the reserves established.
In 2009, a Pennsylvania-based insurance company and its affiliates were ordered into rehabilitation, and the Pennsylvania Insurance Commissioner, who was appointed as the Rehabilitator, filed petitions for liquidation with the Commonwealth Court of Pennsylvania. Under Pennsylvania law, payment of covered claims and other related insurance obligations are provided, within prescribed limits, by state guaranty associations. These guaranty associations assess fees to meet these obligations on insurance companies that sell insurance within the state, which are generally based on a company's pro rata portion of average premiums written or received for several years prior to the insolvency. In March 2017, a formal order of liquidation was issued, and as such, we were subject to an assessment by those guaranty associations that are responsible for policyholder claims, and accordingly accrued, in the first quarter of 2017, an estimated loss contingency. We continue to submit payment to satisfy this assessment as requests for payment are received from the guaranty associations.

Securities Class Actions: Three alleged securities class action lawsuits have been filed against Unum Group and individual defendants as follows:

On June 13, 2018, an alleged securities class action lawsuit entitled Cynthia Pittman v. Unum Group, Richard McKenney, John McGarry, and Daniel Waxenberg was filed in the United States District Court for the Eastern District of Tennessee. The plaintiff seeks to represent purchasers of Unum Group publicly traded securities between January 31, 2018 and May 2, 2018. The plaintiff alleges the Company caused its shares to trade at artificially high levels by failing to disclose information about the rate of long-term care policy terminations and long-term care claim incidence resulting in misleading statements about capital management plans and long-term care reserves. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks compensatory damages in an amount to be proven at trial. The Company strongly denies these allegations and will vigorously defend the litigation.

On July 13, 2018, an alleged securities class action lawsuit entitled Scott Cunningham v. Unum Group, Richard McKenney, John McGarry, and Daniel Waxenberg was filed in the United States District Court for the Eastern District of Tennessee. The allegations, class period, and damages claimed mirror those in the Pittman matter. The Company strongly denies these allegations and will vigorously defend the litigation.

On July 25, 2018, an alleged securities class action lawsuit entitled City of Taylor Police and Fire Retirement System v. Unum Group, Richard McKenney, John McGarry, Steve Zabel, and Daniel Waxenberg was filed in the United States District Court for the Eastern District of Tennessee. The plaintiff seeks to represent purchasers of Unum Group publicly traded securities between October 27, 2016 and May 1, 2018. The allegations and damages claimed mirror those in the Pittman matter. The Company strongly denies these allegations and will vigorously defend the litigation.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group, Richard McKenney, John McGarry, and SubsidiariesDaniel Waxenberg was filed in the United States District Court for the Eastern District of Tennessee. The plaintiff seeks to represent purchasers of Unum Group publicly traded securities between January 31, 2018 and May 2, 2018. The plaintiff alleges the Company caused its shares to trade at artificially high levels by failing to disclose information about the rate of long-term care policy terminations and long-term care claim incidence resulting in misleading statements about capital management plans and long-term care reserves. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks compensatory damages in an amount to be proven at trial. The Company strongly denies these allegations and will vigorously defend the litigation.
June 30, 2019
Note 11 - CommitmentsOn July 13, 2018, an alleged securities class action lawsuit entitled Scott Cunningham v. Unum Group, Richard McKenney, John McGarry, and Contingent Liabilities - ContinuedDaniel Waxenberg was filed in the United States District Court for the Eastern District of Tennessee. The allegations, class period, and damages claimed mirror those in the Pittman matter. The Company strongly denies these allegations and will vigorously defend the litigation.

On July 25, 2018, an alleged securities class action lawsuit entitled City of Taylor Police and Fire Retirement System v. Unum Group, Richard McKenney, John McGarry, Steve Zabel, and Daniel Waxenberg was filed in the United States District Court for the Eastern District of Tennessee. The plaintiff seeks to represent purchasers of Unum Group publicly traded securities between October 27, 2016 and May 1, 2018. The allegations and damages claimed mirror those in the Pittman matter. The Company strongly denies these allegations and will vigorously defend the litigation.

On November 9, 2018, the court consolidated the Pittman, Cunningham, and City of Taylor Police and Fire Retirement System cases into one matter entitled In re Unum Group Securities Litigation, appointed a lead plaintiff and lead plaintiff’s counsel, and directed the plaintiff to file a consolidated amended complaint. On January 15, 2019, the plaintiff filed a consolidated amended complaint asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks compensatory damages in an amount to be proven at trial as well as costs, expenses, and attorney’s fees. On March 18, 2019, the Company filed a motion to dismiss the consolidated amended complaint. On November 4, 2019 the court heard oral argument on the motion.We are awaiting the court’s ruling.

58



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
March 31, 2020
Note 11 - Commitments and Contingent Liabilities - Continued
These lawsuits are in a very preliminary stage, the outcome is uncertain, and the Company is unable to estimate a range of reasonably possible losses. Reserves have not been established for these matters. Although we believe these claims lack merit, an adverse outcome in one or more of these actions could, depending on the nature, scope, and amount of the ruling, materially adversely affect our consolidated results of operations in a period.

Note 12 - LeasesOther

We lease certain buildings and equipment under various noncancelable operating lease agreements. In addition, we have sub-lease agreements on a limited numberDebt

At March 31, 2020, short-term debt consisted entirely of our building lease agreements. The majority5.625% senior unsecured notes due in the third quarter of our building leases and sub-leases expire within a five to ten year period and we generally have the option to renew at the end of the lease term for an additional five to ten year period at the fair rental value at the time of renewal. The majority of our equipment leases expire within a one to three year period and we generally have the option to renew at the end of the lease term for an additional one to three year period at the fair rental value at the time of renewal.

We do not have any lease agreements or sub-lease agreements that contain variable lease payments. In addition, we do not have lease agreements or sub-lease agreements that contain residual value guarantees or impose any restrictions or covenants with the lessors.
We determine if an arrangement is a lease at inception through a formal process that evaluates our right to control the use of an identified asset for a period of time in exchange for consideration. We account for the lease and non-lease components of our building leases separately and have elected to use the available practical expedient to account for the lease and non-lease components of our equipment leases as a single component. All of our leases are classified as operating, none of which are classified as short-term leases. For each operating lease, we calculate a lease liability at commencement date based on the present value of lease payments over the lease term and a corresponding right-of-use (ROU) asset, adjusted for lease incentives.
ROU assets represent our right to use an underlying asset for a specified lease term and are2020. Also included in other assets in our consolidated balance sheet. Lease liabilities represent the present valuecarrying amount of lease payments that weshort-term debt are obligated to pay arising from a lease and are included in other liabilities in our consolidated balance sheet. We consider the likelihooddeferred debt costs of renewal in determining the lease terms for the calculation of the ROU asset and lease liability. As most of our leases do not provide an implicit rate of interest, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate of interest when readily determinable.$0.2 million.
Operating lease cost is calculated on a straight-line basis over the lease term and is included in other expenses in our consolidated statement of income. We amortize the ROU asset over the lease term on a pattern determined by the difference between the straight-line lease liability expense and the accretion of the imputed interest calculated on the lease liability.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 12 - Leases - Continued


Operating lease information is as follows:
 Three Months Ended Six Months Ended
 June 30, 2019
 (in millions of dollars)
Lease Cost   
Operating Lease Cost$7.1
 $14.6
Sublease Income(0.4) (0.8)
Total Lease Cost$6.7
 $13.8
    
Other Information   
Cash Paid for Amounts Included in the Measurement of Lease Liabilities$7.3
 $14.6
Weighted-Average Remaining Lease Term  7 years
Weighted-Average Discount Rate  4.68%


As of June 30, 2019 aggregate undiscounted minimum net lease payments and the reconciliation to our lease liability are as follows:
Remainder of 2019$13.9 
202025.0 
202121.5 
202218.0 
202312.4 
2024 and Thereafter49.5 
Total$140.3 
Less Imputed Interest22.8 
Lease Liability$117.5 


As of June 30, 2019, the right-of-use asset was $111.5 million.

Note 13 - Debt

During the sixthree months ended June 30, 2019,March 31, 2020, we made principal payments of $30.0$15.0 million on our senior secured non-recourse notes issued by Northwind Holdings, LLC.

In June 2019, we issued $400.0 million of 4.00% senior notes due 2029. The notes are callable at or above par and rank equally in the right of payment with all of our other unsecured and unsubordinated debt.

In April 2019, we amended the terms of our existing five-year unsecured revolving credit facility, increasing it from $400.0 million to $500.0 million. The credit facility, which was previously set to expire in 2021, was extended through April 2024. Under the terms of the amended agreement, we may request that the credit facility be increased up to $700.0 million, up from the previous amount of $600.0 million. We also may request, on up to two occasions, that the lenders' commitment termination dates be extended by one year. The credit facility provides for the issuance of letters of credit subject to certain terms and limitations. At June 30, 2019,March 31, 2020, letters of credit totaling $2.0$0.6 million had been issued from theour credit facility,facilities, but there were no0 borrowed amounts outstanding.

Also in April 2019, we separately entered into a three-year, $100.0 million unsecured revolving credit facility with a different syndicate of lenders, which is set to expire in April 2022. Under the terms of the agreement, we may request that the credit facility be increased up to $140.0 million. We also may request that the lenders' commitment termination dates be extended by

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2019
Note 13 - Debt - Continued


one year. The credit facility provides for the issuance of letters of credit subject to certain terms and limitations. At June 30, 2019, there have been no letters of credit issued from the credit facility and there were no borrowed amounts outstanding.

Borrowings under the credit facilities are for general corporate uses and are subject to financial covenants, negative covenants, and events of default that are customary. The two primary financial covenants include limitations based on our leverage ratio and consolidated net worth. We are also subject to covenants that limit subsidiary indebtedness. The credit facilities provide for borrowings at an interest rate based either on the prime rate or LIBOR.


Other

In connection with a financial examination of Unum Life Insurance Company of America (Unum America), which is expected to close at the end of the second quarter of 2020, the Maine Bureau of Insurance (MBOI) has concluded that Unum America’s long-term care statutory reserves are deficient by $2.1 billion as of December 31, 2018, the financial statement date of the examination period. The MBOI granted permission to Unum America on May 1, 2020, to phase in the additional statutory reserves over seven years beginning with year-end 2020 and ending with year-end 2026. The 2020 phase-in amount is estimated to be between $200 million and $250 million. This strengthening will be accomplished by our actuaries incorporating explicitly agreed upon margins into our existing assumptions for annual statutory reserve adequacy testing. These actions will add margin to Unum America's best estimate assumptions. Our long-term care reserves and financial results reported under generally accepted accounting principles are not affected by the MBOI’s examination conclusion. We plan to fund the additional statutory reserves with expected cash flows. If the permitted practice was not granted by the MBOI to phase in these additional statutory reserves, the impact to the risk-based capital ratio would have triggered a regulatory event.


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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Summary

Unum Group, a Delaware general business corporation, and its insurance and non-insurance subsidiaries, which collectively with Unum Group we refer to as the Company, operate in the United States, the United Kingdom, Poland and, to a limited extent, in certain other countries. The principal operating subsidiaries in the United States are Unum Life Insurance Company of America, Provident Life and Accident Insurance Company, The Paul Revere Life Insurance Company, Colonial Life & Accident Insurance Company, Starmount Life Insurance Company, in the United Kingdom, Unum Limited, and in Poland, Unum Zycie TUiR S.A. (Unum Poland). We are a leading provider of financial protection benefits in the United States and the United Kingdom. Our products include disability, life, accident, critical illness, dental and vision, and other related services. We market our products primarily through the workplace.

We have three principal operating business segments: Unum US, Unum International, and Colonial Life. Our other segments are the Closed Block and Corporate segments. These segments are discussed more fully under "Segment Results" included herein in this Item 2.

The benefits we provide help protect people from the financial hardship of illness, injury, or loss of life by providing support when it is needed most. As one of the leading providers of employee benefits, in the U.S. and the U.K., we offer a broad portfolio of products and services through the workplace.

Specifically, we offer group, individual, voluntary, and voluntary benefits, eitherdental and vision products as well as provide certain fee-based services. These products and services, which can be sold stand-alone products or combined with other coverages, that help employers of all sizes attract and retain a stronger workforce while protecting the incomes and livelihood of their employees. We believe employer-sponsored benefits representare the single most effective way to provide workers with access to the information and options they need to protect their financial stability. Working people and their families, particularly those at lower and middle incomes, are perhaps the most vulnerable in today's economy yet are often overlooked by many providers of financial services and products. For many of these people, employer-sponsored benefits are the primary defense against the potentially catastrophic fallout of death, illness, or injury.
We have established a corporate culture consistent with the social values our products provide. WeBecause we see important links
between the obligations we have to all of our stakeholders, we place a strong emphasis on contributing to positive change in our
communities. Accordingly, we are committed not only to meeting the needs of our customers who depend on us, but also to operating with integrity and being accountable for our actions. Ouractions through sound and consistent business practices, a strong internal compliance program, and a comprehensive risk management strategy enable us to operate efficiently as well as to identify and address potential areas of risk in our business. We have also applied these same values to our social responsibility efforts. Because we see important links between the obligations we have to all of our stakeholders, we place a strong emphasis on contributing to positive change in our communities.strategy.
This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto in Part I, Item 1 contained in this Form 10-Q and with the "Cautionary Statement Regarding Forward-Looking Statements" included below the Table of Contents, as well as the discussion, analysis, and consolidated financial statements and notes thereto in Part I, Items 1 and 1A, and Part II, Items 6, 7, 7A, and 8 of our annual report on Form 10-K for the year ended December 31, 2018.2019.



Operating Performance and Capital Management

For the secondfirst quarter of 2019, we2020, we reported net income of $281.2$161.0 million, or $1.33 per common share, compared to net income of $285.5 million, or $1.29 per diluted common share, in the same period of 2018. For the first six months of 2019, net income was $562.1 million, or $2.64$0.79 per diluted common share, compared to net income of $559.0$280.9 million, or $2.52$1.31 per diluted common share, in the same periodfirst quarter of 2018.2019. Net income includes net realized investment gains and losses. Excluding net realized investment gains and losses, after-tax adjusted operating income infor the secondfirst quarter of 20192020 was $286.9$274.1 million, or $1.36$1.35 per diluted common share compared to $287.6$280.3 million, or $1.30$1.31 per diluted common share, in the same period of 2018. After-tax adjusted operating income was $567.2 million, or $2.67 per diluted common share, infor the first six monthsquarter of 2019, compared to $562.7 million, or $2.54 per diluted common share, in the first six months of 2018.2019. See "Reconciliation of Non-GAAP and Other Financial Measures" contained in this Item 2 for a reconciliation of these items.

Our Unum US segment reported an increase in adjusted operating income of 1.3 percent and 2.33.8 percent in the secondfirst quarter and first six months of 2019, respectively,2020 compared to the same periodsperiod of 2018, with2019, due primarily to growth in premium income and favorable benefits experience, partially offset by lower net investment income. Also impacting the results for the six months ended 2019 was higher amortization ofincome and unfavorable deferred acquisition costs. The benefit ratio for our Unum US segment for the first quarter of 2020 was 67.664.4 percent, and 66.5compared to 65.3 percent in the second quarter and first six monthssame period of 2019, respectively, compared to 67.0 percent and 66.9 percent in the second quarter and first six months of 2018.2019. Unum US sales increased 12.1 percent and 5.9decreased 15.3 percent in the secondfirst quarter and first six months of 2019, respectively,2020 compared to the same periodsperiod of 2018. Relative2019. Persistency was lower relative to the prior year persistency in our group product lines was favorable while persistency in our supplemental and voluntary product lines was less favorable.period.

60


Our Unum International segment reported an increasea decrease in adjusted operating income of 33.3 percent in the first quarter of 2020 compared to the same prior year period as measured in U.S. dollars, of 11.2 percent and 4.2 percent in the second quarter and first six months of 2019, respectively, compared to the same periods of 2018.dollars. As measured in local currency, our Unum UK line of business reported an increasea decrease in adjusted operating income of 11.3 percent and 6.036.6 percent in the secondfirst quarter and first six months of 2019, respectively,2020 compared to the same periodsperiod of 2018,2019 due primarily to premium growth and higher net investment income,unfavorable benefits experience, partially offset by unfavorable benefits experience.an increase in premium income and net investment income. The benefit ratio for our Unum UK line of business was 85.6 percent and 78.180.5 percent in the secondfirst quarter and first six months of 2019, respectively,2020 compared to 76.7 percent and 74.370.2 percent in the same periodsperiod of 2018.2019. Unum International sales, as measured in U.S. dollars, increased 5.8 percent in the first quarter of 2020 compared to the same period of 2019. Unum UK sales, as measured in local currency increased 0.5 percent and 7.612.2 percent in the secondfirst quarter and first six months of 20192020 compared to the same periodsperiod of 2018.2019. Persistency was favorablehigher overall relative to the prior year.year period.

Our Colonial Life segment reported a decrease in adjusted operating income of 0.24.8 percent in the secondfirst quarter of 20192020 compared to the same period of 2018 but reported an increase of 2.4 percent in the first six months of 2019 compareddue to the same period of 2018. Impacting the results in each period was premium growth, lower net investment income,unfavorable benefits experience and higher amortization ofunfavorable deferred acquisition costs.costs, partially offset by higher premium income. The benefit ratio for Colonial Life was 51.4 percent and 51.252.4 percent in the secondfirst quarter and first six months of 2019, respectively,2020 compared to 51.0 percent and 51.351.1 percent in the same periodsperiod of 2018.2019. Colonial Life sales decreased 4.2 percent and 0.28.7 percent in the secondfirst quarter and first six months of 2019, respectively,2020 compared to the same periodsperiod of 2018.2019. Persistency was lower relative to the prior year.

Our Closed Block segment reported an increasea decrease in adjusted operating income of 13.9 percent and 10.64.2 percent in the secondfirst quarter and first six months of 2019, respectively,2020 compared to the same periodsperiod of 2018,2019 due primarily to both lower premium income and net investment income. Benefits experience for long-term care was favorable in the first quarter of 2020 relative to the same period of 2019 and continues to be within our range of expectations with an increaseinterest adjusted loss ratio of 86.2 percent on a rolling twelve-month basis. Individual disability benefits experience was unfavorable in the first quarter of 2020 relative to the same period of 2019 but remains within our expectations.

Our net investment income partially offset by lower premium income. Benefits experience in our individual disability line of business remains consistent with our expectations, with favorable experience in the second quarter of 2019 compared to the same prior year period and slightly unfavorable experience during the first six months of 2019 compared to the same prior year period. Benefits experience in our long-term care line of business, during the second quarter and first six months of 2019 was not comparable to the same prior year periods due to the update in our assumptions during the third quarter of 2018, but was consistent with our expectations.

Although our profit marginsyields continue to be pressured by the impact of the low interest rate environment on our net investment income yields,as we maintain consistent credit quality in our invested asset quality remains strong.portfolio. The net unrealized gain on our fixed maturity securities was $5.6$4.3 billion at June 30, 2019March 31, 2020, compared to $2.7$6.4 billion at December 31, 2018,2019, with the decrease due primarily to an increase due toin credit spreads partially offset by a decreasedecline in U.S. Treasury rates and credit spreads during the first six monthsquarter of 2019.2020. The earned book yield on our investment portfolio was 5.044.75 percent for the first six monthsquarter of 20192020 compared to a yield of 5.155.00 percent for full year 2018.2019.

We believe our capital and financial positions are strong. At June 30, 2019,March 31, 2020, the risk-based capital (RBC) ratio for our traditional U.S. insurance subsidiaries, calculated on a weighted average basis using the NAIC Company Action Level formula, was approximately 365 percent, which is in line with our expectations. DuringWe did not repurchase shares during the first sixthree months of 2019, we repurchased 5.6 million shares of Unum Group common stock under our share repurchase program, at a cost of approximately $200 million.2020. Our


weighted average common shares outstanding, assuming dilution, equaled 211.1203.4 million and 221.1214.4 million for the second quarterfirst quarters of 20192020 and 2018, respectively, and 212.8 million and 221.8 million for first six months of 2019, and 2018, respectively, reflecting our capital management strategy of returning capital to shareholders through repurchases of our common stock. As of June 30, 2019,March 31, 2020, Unum Group and our intermediate holding companies held short-dated fixed maturity securities, short-term investments, and cash of $977$1,025 million.

2018 Long-term Care Reserve IncreaseCoronavirus Disease 2019 (COVID-19)

Policy reservesOn March 11, 2020, the World Health Organization identified the spread of COVID-19 as a pandemic. COVID-19 has caused significant disruption to the global economy and has unfavorably impacted our company as well as the overall insurance industry. Due to the unprecedented nature of these events and the current pace of change in this environment, we cannot fully estimate the ultimate impact of the COVID-19 pandemic at this time. We are closely monitoring several key factors related to our business that have and may continue to have adverse impacts.

Results of Operations and Financial Condition

Our results of operations for the first quarter of 2020 and our financial condition as of March 31, 2020 were not significantly impacted by the effects of COVID-19. The primary effects of COVID-19 on our first quarter of 2020 results of operations were an increase in our allowances for credit losses related to our premium receivables and investments in commercial mortgage loans and limited impact to our claims experience in certain of our product lines. The primary effect of COVID-19 on our financial condition as of March 31, 2020 was a decrease in the net unrealized gain on our fixed maturity securities due in large part to the disruption in financial markets which resulted in the significant widening of credit spreads and a partially offsetting decline in U.S. treasury rates. We have also experienced disruption in the sales activity related to certain of our product lines where some potential new customers have deferred their decision to enter into the policy for our long-term care blockproducts given the current economic environment, this disruption did not have a direct impact on our results of operations for the first quarter of 2020 but will likely result in a decline in premium income related to new sales that would have been recognized in subsequent periods.

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Given recent increases in unemployment levels, general uncertainty regarding the financial condition of our customers, and disruptions to our sales processes, we expect an unfavorable impact to our premium collectability as well as lower premium income resulting from declines in persistency levels and sales growth in the near term, and potentially longer, if the current situation persists. Although we have not yet experienced a significant deterioration in these key areas, we are closely monitoring this activity to identify unfavorable trends and are also working with our customers to understand their respective financial conditions. For example, in addition to complying with state-level requirements regarding billing and administration accommodations, we may also develop solutions with our customers on a case-by-case basis to allow for additional payment flexibility in an effort to enhance the likelihood of premium collection and avoid disruptions to coverage. However, circumstances may deteriorate quickly, which could result in material negative impacts on our results of operations with increased allowances for credit losses and decreased premium income. See Notes 1 and 2 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further information on our allowances for credit losses.

Regarding our fixed maturity security portfolio, the current economic conditions have increased volatility in the capital markets and have caused significant pressure on the profitability of many companies. The sharp decline in oil prices, while not directly related to COVID-19 initially, is also causing pressure on the profitability of companies in the energy sector. We have recorded credit losses during the first quarter of 2020 primarily related to fixed maturity securities issued by companies in the energy sector and continue to monitor capital market activity on a regular basis. To the extent that there is continued volatility and ratings downgrades related to the issuers of our fixed maturity securities, we could experience further credit losses, an increase in defaults, and the need for additional capital in our insurance subsidiaries. However, we remain confident in the overall strength and credit quality of our investment portfolio. Net investment income may decline as a result of the current economic conditions, which have sustained the low interest rate environment that will continue to impact the yield on our invested assets, particularly related to the investment of new cash flows. Although, we recognized favorable results in net investment income for our partnership investments in the first quarter of 2020 reflecting the market conditions of the fourth quarter of 2019, we expect to recognize declines in the net asset values of our partnership investments in the second quarter of 2020 as we receive financial statements from the partnerships for the first quarter of 2020. We are also working with certain of our commercial mortgage loan borrowers that have requested temporary payment deferrals. For further information on our investment portfolio, see "Investments" contained herein and Notes 3 and 4 of the "Notes to Consolidated Financial Statements" contained herein in Item 1.

With respect to our claims liabilities, although we do not believe we have significant exposure to claims directly related to COVID-19, if economic conditions persist, we may begin to experience higher submitted claims incidence, and ultimately, potentially higher claim payments, that is historically associated with sustained economic downturns. Furthermore, as previously mentioned, the low interest rate environment may cause further pressure on the discount rate on our liabilities. We have not yet experienced significant unfavorable trends in these areas but are closely monitoring the situation.

If we begin to experience unfavorable trends in the above areas of focus, we may experience an increase in the amortization of deferred acquisition costs associated with a decline in persistency and may also be required to write-off or impair certain intangible/long-lived assets such as value of business acquired and goodwill if we experience declines in the overall profitability of our businesses and further declines in our market capitalization. Further to declines in profitability, we may also be required to establish a valuation allowance regarding the realization of our deferred tax assets.

Liquidity and Capital Resources

We believe we have the appropriate liquidity and access to capital to avoid significant disruption to our operations. We have not yet experienced a significant decline in the collection of premiums and have also not yet experienced a significant increase in submitted claims; however, we continually monitor the developments of these items.

Regarding liquidity, at March 31, 2020, we have borrowed $451.7 million of funds through the membership of certain of our U.S. insurance subsidiaries with regional Federal Home Loan Banks (FHLB). These funds are determined usingused for the gross premium valuation method and, priorpurpose of investing in either short-term investments or fixed maturity securities but may be utilized for liquidity if the need arises. Additionally, we have access to two unsecured revolving credit facilities under separate syndicates of lenders that allow us to borrow up to a total of $600 million. There are currently no outstanding borrowings on these facilities but we remain in compliance with required covenants should we choose to borrow in the future. Furthermore, excluding the upcoming maturity of our $400.0 million aggregate principal amount of 5.625% unsecured notes due in the third quarter of 2018, were valued based2020, which we funded through an issuance of debt during the second quarter of 2019, we have no significant upcoming debt maturities until 2024. We continue to meet the financial covenants contained in our current debt agreements and credit facilities, and we expect that we will continue to meet those covenants in subsequent periods.

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To the extent that we begin to experience a significant decrease in collection of premiums and/or an increase in claim payments, our liquidity would be negatively impacted and would likely result in the sale of highly liquid invested assets or borrowings on assumptions established as of December 31, 2014, the dateour credit facilities to meet operational cash flow requirements.

Business Operations

Other than disruption to sales processes in certain of our last assumption update under loss recognition. Gross premium valuation assumptionsproduct lines, we have not experienced a significant disruption to our operational processes as we have been able to successfully implement our business continuation plans to accommodate remote work arrangements for the safety of our employees and customers. We also have not experienced significant disruption to our financial reporting systems and internal control over financial reporting and disclosure controls and procedures as a result of COVID-19. We have implemented travel restrictions for the safety of our employees and customers, but do not change afterexpect those restrictions to significantly disrupt our operations.

Government Stimulus

On March 27, 2020, the dateU.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which features significant stimulus and support to individuals and businesses impacted by COVID-19. The CARES Act was the third installment of loss recognition unless reserves are again determinedeconomic stimulus passed, which was preceded by the Coronavirus Preparedness and Response Supplemental Appropriations Act on March 6, 2020 and the Families First Coronavirus Response Act on March 18, 2020. We do not expect these laws to be deficient. We undertake a review of policy reserve adequacy annually during the fourth quarter of each year, or more frequently if appropriate, using best estimate assumptions as of the date of the review.

During the third quarter of 2018, we completed our annual review of policy reserve adequacy, which incorporated our most recent experience and included a review of all assumptions. The review utilized internal and external data and outside consulting firms for quality assurance and industry benchmarking. Based on our analysis, during the third quarter of 2018, we updated our reserve assumptions and determined that our policy and claim reserves should be increased by $750.8 million, or $593.1 million after-tax, to reflect our current estimate of future benefit obligations. This increase was primarily driven by the updatematerial to our liabilityfinancial condition or results of operations. We continue to monitor governmental actions and interest rate assumptions, particularly claims incidence and claim termination rates, which resulted in an increase to reservesany potential future legislation that may be enacted as a result of approximately $2.2 billion. Partially offsetting the increase was the update to our assumptions for premium rate increases which decreased reserves approximately $1.4 billion, resulting in the net increase to reserves of $750.8 million.COVID-19.

U.K. Referendum

During 2016,On January 31, 2020, an official bill was passed formalizing the withdrawal of the U.K. held a referendum and voted to leavefrom the EU. The U.K. subsequently invoked Article 50bill gives approval to an 11- month transition period, until December 31, 2020, to allow for further negotiations regarding the details of the Treaty on European Union (EU) andfuture relationship.We do not expect the deadlineunderlying operations of our U.K. business to leavebe significantly impacted by the EU is currently set for October 31, 2019, which was recently extended from the original date of March 29, 2019. Wewithdrawal but we may see some continued dampening of growth in the U.K. as well as earnings volatility due to the current disruption and uncertainty in the U.K. economy. We may also experience volatility in the fair values of our investments in U.K. and EU-based issuers but we do not expect a material increase in other-than-temporary impairments or defaults, nor do we believe this volatility will impact our ability to hold these investments. The magnitude and longevity of potential negative economic impacts on our growth will depend on whether an agreement is reached between the U.K. and EU as a result of exit negotiations and, if reached, the nature of the agreement and the resulting response of the U.K. marketplace. There are currently no indications that capital requirements for our U.K. operations will change, but economic conditions may cause volatility in our solvency ratios. Our reported consolidated financial results may continue to be impacted by fluctuations in the British pound sterling to dollar exchange rate. Further discussion is contained herein in "Unum International Segment" in this Item 2.

Consolidated Company Outlook

We believe our disciplined approach to providing financial protection products at the workplace puts us in a position of strength as we seek to capitalize on the growing and largely unfilled need for our products and services. We believe the need for ourstrength. The products and services we provide have never been more important to employers, employees and their families, especially given the emergence of the COVID-19 pandemic. We continue to fulfill our corporate purpose of helping the working world thrive throughout life’s moments by providing excellent service to people at their time of need. Our strategy remains strong,centered on growing our existing business, expanding our reach, and investing in our operations and technology to anticipate and respond to meet the changing needs of our customers.

In consideration of the recent COVID-19 pandemic, in the near term, we expect top line growth to be challenging, and we intend to continue protecting our solid margins and returns through our pricing and risk actions. Our strategy is underpinned by our core values and is centered on market growth through the expansion of our product portfolio, distribution system, and geographic footprint, and enhancing the customermay also experience through efficiency, simplification, and investment in digital capabilities. 

We expect to see continued solid premium growth trends in our core businesses, with stable persistency and a disciplined approach to sales growth. We expect to have generally stable benefits experience due to our focus on disciplined pricing, risk selection, and management of renewals. We will maintain our commitment to expense discipline and improving our operational efficiencies.

increased claims volatility. The low interest rate environment continues to place pressure on our profit margins. Our reported consolidated financial results maymargins by impacting net investment income yields as well as potentially discount rates on our insurance liabilities. We would also continueexpect to be unfavorably impacted by politicalexperience further investment volatility through net investment income for unfavorable partnership net asset values and economic uncertainty in the U.K., specifically lower interest rates, wage inflation and employer spending, and claims volatility. We expectratings migrations within our effective tax rate for 2019portfolio which will have unfavorable impacts to be approximately 20 percent. The reduction in the corporate tax rate resulting from tax reform has improved the statutory earnings and cash generationour capital position. As part of our insurance subsidiariescontinued pricing discipline and our capital position remains strong.reserving methodology, we continuously monitor emerging interest rate experience and adjust our pricing and reserve discount rates, as appropriate.



WeOur business is well-diversified by geography, industry exposures and case size, and we continue to analyze and employ strategies that we believe will help us navigate the current environment andenvironment. These strategies allow us to maintain solid operating margins and significant financial flexibility to support the needs of our businesses, while also continuing to returnreturning capital to our shareholders and exploring merger and acquisition opportunities to enhance our business lines.shareholders. We have substantialstrong core businesses that have a track record of generating significant capital, and we will continue to invest in our operations and expand into new areas where we can best leverage our expertise and capabilities to rising interest rates and an improving economy which generates payrollcapture market growth and wage inflation. Weopportunities as those opportunities re-emerge. Long-term, we believe that consistent operating results, combined with the implementation of strategic initiatives and the effective deployment of capital, will allow us to meet our long-term financial objectives.
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Further discussion is contained in this Item 2 and in the "Notes to Consolidated Financial Statements" contained herein in Item 1.

Reconciliation of Non-GAAP and Other Financial Measures

We analyze our performance using non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measure of "after-tax adjusted operating income" differs from net income as presented in our consolidated operating results and income statements prepared in accordance with GAAP due to the exclusion of net realized investment gains and losses as specified in the reconciliations below. We believe after-tax adjusted operating income is a better performance measure and better indicator of the profitability and underlying trends in our business.

Realized investment gains or losses depend on market conditions and do not necessarily relate to decisions regarding the underlying business of our segments. Our investment focus is on investment income to support our insurance liabilities as opposed to the generation of realized investment gains or losses. Although we may experience realized investment gains or losses which will affect future earnings levels, a long-term focus is necessary to maintain profitability over the life of the business since our underlying business is long-term in nature, and we need to earn the interest rates assumed in calculating our liabilities.

We may at other times exclude certain other items from our discussion of financial ratios and metrics in order to enhance the understanding and comparability of our operational performance and the underlying fundamentals. We exclude these items as we believe them to be infrequent or unusual in nature, but this exclusion is not an indication that similar items may not recur and does not replace net income or net loss as a measure of our overall profitability.

A reconciliation of GAAP financial measures to our non-GAAP financial measures is as follows:

Three Months Ended June 30Three Months Ended March 31
2019 201820202019
(in millions) per share * (in millions) per share *(in millions)per share *(in millions)per share *
Net Income$281.2

$1.33
 $285.5

$1.29
Net Income$161.0  $0.79  $280.9  $1.31  
Excluding:       Excluding:
Net Realized Investment Loss (net of tax benefit of $1.6; $0.5)(5.7)
(0.03) (2.1)
(0.01)
After-tax Adjusted Operating Income$286.9
 $1.36
 $287.6
 $1.30
Net Realized Investment Gain (Loss) (net of tax expense (benefit) of $(30.9); $0.5)Net Realized Investment Gain (Loss) (net of tax expense (benefit) of $(30.9); $0.5)(113.1) (0.56) 0.6  —  
       
Six Months Ended June 30
2019 2018
(in millions) per share * (in millions) per share *
Net Income$562.1

$2.64
 $559.0

$2.52
Excluding:       
Net Realized Investment Loss (net of tax benefit of $1.1; $1.1)(5.1) (0.03) (3.7) (0.02)
After-tax Adjusted Operating Income$567.2
 $2.67
 $562.7
 $2.54
After-tax Adjusted Operating Income$274.1  $1.35  $280.3  $1.31  
       
* Assuming Dilution       * Assuming Dilution



We measure and analyze our segment performance on the basis of "adjusted operating revenue" and "adjusted operating income" or "adjusted operating loss", which differ from total revenue and income before income tax as presented in our consolidated statements of income due to the exclusion of net realized investment gains and losses as specified in the reconciliations below. These performance measures are in accordance with GAAP guidance for segment reporting, but they should not be viewed as a substitute for total revenue, income before income tax, or net income.

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A reconciliation of total revenue to "adjusted operating revenue" and income before income tax to "adjusted operating income" is as follows:

Three Months Ended June 30 Six Months Ended June 30Three Months Ended March 31
2019 2018 2019 201820202019
(in millions of dollars)(in millions of dollars)
Total Revenue$3,016.7
 $2,890.3
 $6,004.3
 $5,789.9
Total Revenue  $2,871.1  $2,987.6  
Excluding:       Excluding:  
Net Realized Investment Loss(7.3) (2.6) (6.2) (4.8)
Net Realized Investment Gain (Loss)Net Realized Investment Gain (Loss) (144.0) 1.1  
Adjusted Operating Revenue$3,024.0
 $2,892.9
 $6,010.5
 $5,794.7
Adjusted Operating Revenue  $3,015.1  $2,986.5  

       
Income Before Income Tax$352.0
 $354.8
 $705.3
 $695.9
Income Before Income Tax$202.1  $353.3  
Excluding:       Excluding:
Net Realized Investment Loss(7.3) (2.6) (6.2) (4.8)
Net Realized Investment Gain (Loss)Net Realized Investment Gain (Loss) (144.0) 1.1  
Adjusted Operating Income$359.3
 $357.4
 $711.5
 $700.7
Adjusted Operating Income$346.1  $352.2  

Critical Accounting Estimates

We prepare our financial statements in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in our financial statements and accompanying notes. Estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed in our financial statements.

The accounting estimates deemed to be most critical to our financial position and results of operations are those related to reserves for policy and contract benefits, deferred acquisition costs, valuation of investments, pension and postretirement benefit plans, income taxes, and contingent liabilities. Effective January 1, 2020, we adopted new accounting guidance regarding estimating expected credit losses related to our commercial mortgage loan investments and the recording of credit losses related to our available-for-sale fixed maturity securities. There have been no other significant changes in our critical accounting estimates during the first sixthree months of 2019.2020.

For additional information, refer to our significant accounting policies in Note 1 of the "Notes to Consolidated Financial Statements" in Part II, Item 8 and "Critical Accounting Estimates" in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2018.2019.

Accounting Developments

See Note 2 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further information on accounting developments.


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Consolidated Operating Results
(in millions of dollars)
 Three Months Ended March 31
 2020% Change2019
Revenue
Premium Income$2,371.4  1.4 %$2,338.7  
Net Investment Income585.0  (1.6) 594.7  
Net Realized Investment Gain (Loss)(144.0) N.M.  1.1  
Other Income58.7  10.5  53.1  
Total Revenue2,871.1  (3.9) 2,987.6  
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits1,854.8  0.8  1,840.8  
Commissions279.2  (3.8) 290.1  
Interest and Debt Expense45.7  8.6  42.1  
Deferral of Acquisition Costs(162.0) (6.7) (173.7) 
Amortization of Deferred Acquisition Costs176.2  3.3  170.6  
Compensation Expense239.5  5.7  226.5  
Other Expenses235.6  (1.0) 237.9  
Total Benefits and Expenses2,669.0  1.3  2,634.3  
Income Before Income Tax202.1  (42.8) 353.3  
Income Tax41.1  (43.2) 72.4  
Net Income$161.0  (42.7) $280.9  
N.M. = not a meaningful percentage
(in millions of dollars)           
 Three Months Ended June 30 Six Months Ended June 30
 2019 % Change 2018 2019 % Change 2018
Revenue           
Premium Income$2,343.1
 5.5 % $2,221.0
 $4,681.8
 4.7 % $4,471.0
Net Investment Income624.9
 0.2
 623.6
 1,219.6
 (0.5) 1,225.9
Net Realized Investment Loss(7.3) 180.8
 (2.6) (6.2) 29.2
 (4.8)
Other Income56.0
 15.9
 48.3
 109.1
 11.6
 97.8
Total Revenue3,016.7
 4.4
 2,890.3
 6,004.3
 3.7
 5,789.9
            
Benefits and Expenses           
Benefits and Change in Reserves for Future Benefits1,902.6
 5.5
 1,804.1
 3,743.4
 3.6
 3,612.0
Commissions284.4
 4.0
 273.5
 574.5
 3.4
 555.8
Interest and Debt Expense42.6
 0.5
 42.4
 84.7
 2.5
 82.6
Deferral of Acquisition Costs(170.3) 2.8
 (165.7) (344.0) 2.7
 (335.0)
Amortization of Deferred Acquisition Costs151.6
 8.1
 140.2
 322.2
 10.5
 291.7
Compensation Expense223.9
 1.7
 220.2
 450.4
 1.9
 441.9
Other Expenses229.9
 4.1
 220.8
 467.8
 5.1
 445.0
Total Benefits and Expenses2,664.7
 5.1
 2,535.5
 5,299.0
 4.0
 5,094.0
            
Income Before Income Tax352.0
 (0.8) 354.8
 705.3
 1.4
 695.9
Income Tax Expense70.8
 2.2
 69.3
 143.2
 4.6
 136.9
            
Net Income$281.2
 (1.5) $285.5
 $562.1
 0.6
 $559.0
            

Fluctuations in exchange rates, particularly between the British pound sterling and the U.S. dollar for our U.K. operations, have an effect on our consolidated financial results. In periods when the pound strengthens, translating pounds into dollars increases current period results relative to the prior period. In periods when the pound weakens relative to the preceding period, translating pounds into dollars decreases current period results relative to the prior period. In periods when the pound strengthens, translating pounds into dollars increases current period results relative to the prior period.

The weighted average pound/dollar exchange rate for our Unum UK line of business was 1.2861.277 and 1.3531.306 for the three months ended June 30,March 31, 2020 and 2019, and 2018, and 1.296 and 1.373 for the six months ended June 30, 2019 and 2018, respectively. If 2018the first quarter of 2019 results for our U.K. operations had been translated at the lower exchange ratesrate of 2019,2020, our adjusted operating revenue and adjusted operating income by segment would have both been lower by approximately $9$3 million and $1 million, respectively, in the secondfirst quarter of 2018, and lower by approximately $20 million and $3 million, respectively, in the first six months of 2018.2019. However, it is important to distinguish between translating and converting foreign currency. Except for a limited number of transactions, we do not actually convert pounds into dollars. As a result, we view foreign currency translation as a financial reporting item and not a reflection of operations or profitability in the U.K.

Premium income for the secondfirst quarter and first six months of 20192020 increased slightly relative to the same periodsperiod of 2018,2019, with growth in each of our principal operating business segments, due to overall salesdriven by growth in the expansion of our dental and vision products, the addition of our Unum Poland line of business, and generally stable persistency.in-force block resulting from prior period sales. Premium income continues to decline, as expected, in our Closed Block segment.

Net investment income was generally consistentdecreased in the secondfirst quarter of 20192020 relative to the same period of 2018 but was lower during the first six months of 2019 relative to the same period of 2018, due to a decline in the yield on invested assets, and lowerpartially offset by higher miscellaneous investment income partially offset byand an increase in the level of invested assets.



There were no other-than-temporary impairment losses on fixed maturity securities includedIncluded in net realized investment gains and losses for the secondfirst quarter of 2019 or 2018, or for2020, were credit losses on fixed maturity securities of $53.9 million related primarily to securities in the first six months of 2019. We recognized $1.0 million of other-than-temporary impairmentenergy sector. There were no credit losses on fixed maturity securities in net realized investment gains and losses duringin the first six monthsquarter of 2018.2019. Also included in net realized investment gains and losses were changes in the fair value of an embedded derivative in a modified coinsurance arrangement, which resulted in realized gains (losses) of $(0.8)$(86.9) million and $(2.3) million in the second quarters of 2019 and 2018, respectively, and $4.7 million and $(4.0)$5.5 million in the first six monthsquarters of 2020 and 2019, and 2018, respectively. The loss on the embedded
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derivative in the first quarter of 2020 was primarily due to a widening of credit spreads in the overall investment market. See Note 4 in the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further information on realized investment gains and losses.

Other income increased in the secondfirst quarter and first six months of 2019 compared2020 relative to the same periods of 2018prior year period due primarily to growth in our fee-based service products in ourthe Unum US segment, which include family medical leave management services and administrative services only (ASO) products.business.

Overall benefits experience was consistentgenerally stable in the secondfirst quarter of 2019 and favorable during the first six months of 20192020 relative to the same prior year periods.period. The benefits experience for each of our operating business segments is discussed more fully in "Segment Results" as follows.

Commissions and the deferral of acquisition costs increaseddecreased during the first quarter of 2020 compared to the first quarter of 2019 driven by lower sales in the secondUnum US and Colonial Life segments as well as a shift in product mix in the Unum US voluntary line of business. The increase in the amortization of deferred acquisition costs in the first quarter andof 2020 compared to the first six monthsquarter of 2019 relativeis due to the same periods of 2018 driven primarily by sales growth. Growthgrowth in the level of the deferred asset in our Unum US and Colonial Life segments and the impact of the prospective unlocking for future experience relative to assumptions in certain of our Colonial life products resulted in higher amortization in the second quarter and first six months of 2019 compared to the same prior year periods. Also contributing to the increase for the first six months was a higher level of policy terminations experienced in the Unum US voluntary benefits line of business.individual disability product line.

Interest and debt expense was slightly higherincreased in the secondfirst quarter and first six months of 2019 relative2020 compared to the same periodsfirst quarter of 20182019 due primarily to a higher level of outstanding debt.

Other expenses includingand compensation expense, on a combined basis, increased in the secondfirst quarter and first six months of 2019 relative2020 compared to the same periodsfirst quarter of 2018, however, the other expense ratio decreased relative to the prior year2019 due to growth in premium incomeour fee-based service products and our continued balancing ofoperational investments in the growth of our business, withpartially offset by our continued focus on expense management and operating efficiencies.

Our effective income tax ratesrate for the secondfirst quarter and first six months of 2019 were 20.1 percent and2020 was 20.3 percent of income before income tax, respectively, compared to 19.5 percent and 19.720.5 percent for the prior year periods.first quarter of 2019. Our effective tax raterates differed from the U.S. statutory rate of 21 percent in effect for the second quarterfirst quarters of 2020 and first six months of 2019 and 2018 primarily due to favorable tax credits. In March 2020, an income tax rate change was proposed which would increase the tax rate in the U.K. from the current rate of 17 percent to 19 percent effective 2020. If enacted, we would adjust deferred tax assets and liabilities through income on the date of enactment of the rate change. We do not expect this proposed rate change, if enacted, to have a material impact on our 2020 financial position or results of operations.


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Consolidated Sales Results
 
Shown below are sales results for our three principal operating business segments.

(in millions)           (in millions)
Three Months Ended June 30 Six Months Ended June 30Three Months Ended March 31
2019 % Change 2018 2019 % Change 2018 2020% Change2019
Unum US$221.7
 12.1 % $197.7
 $500.1
 5.9 % $472.3
Unum US$235.8  (15.3)%$278.4  
           
Unum International$29.7
 4.9 % $28.3
 $52.3
 15.2 % $45.4
Unum International$23.9  5.8 %$22.6  
           
Colonial Life$126.9
 (4.2)% $132.4
 $235.7
 (0.2)% $236.1
Colonial Life$99.3  (8.7)%$108.8  

Sales shown in the preceding chart generally represent the annualized premium income on new sales which we expect to receive and report as premium income during the next 12 months following or beginning in the initial quarter in which the sale is reported, depending on the effective date of the new sale. Sales do not correspond to premium income reported as revenue in accordance with GAAP. This is because new annualized sales premiums reflect current sales performance and what we expect to recognize as premium income over a 12 month period, while premium income reported in our financial statements is reported on an "as earned" basis rather than an annualized basis and also includes renewals and persistency of in-force policies written in prior years as well as current new sales.

Sales, persistency of the existing block of business, employment and salary growth, and the effectiveness of a renewal program are indicators of growth in premium income. Trends in new sales, as well as existing market share, also indicate the potential for growth in our respective markets and the level of market acceptance of price levels and new product offerings. Sales results may fluctuate significantly due to case size and timing of sales submissions.

See "Segment Results" as follows for a discussion of sales by segment.


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Segment Results

Our reporting segments are comprised of the following: Unum US, Unum International, Colonial Life, Closed Block, and Corporate.

Unum US Segment

The Unum US segment is comprised of group disability insurance, which includes groupour long-term and short-term disability insurance,products, our medical stop-loss product, and our fee-based leave management services and ASO business, group life and accidental death and dismemberment products, and supplemental and voluntary lines of business, which are comprised of individual disability, voluntary benefits, and dental and vision products.

Unum US Operating Results

Shown below are financial results for the Unum US segment. In the sections following, financial results and key ratios are also presented for the major lines of business within the segment.

(in millions of dollars, except ratios)
 Three Months Ended March 31
 2020% Change2019
Adjusted Operating Revenue
Premium Income$1,527.7  1.7 %$1,501.9  
Net Investment Income179.6  (1.4) 182.1  
Other Income40.2  16.5  34.5  
Total1,747.5  1.7  1,718.5  
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits984.6  0.4  980.7  
Commissions154.3  (5.3) 163.0  
Deferral of Acquisition Costs(79.6) (9.1) (87.6) 
Amortization of Deferred Acquisition Costs107.7  3.7  103.9  
Other Expenses318.7  4.1  306.2  
Total1,485.7  1.3  1,466.2  
Adjusted Operating Income$261.8  3.8  $252.3  
Operating Ratios (% of Premium Income):
Benefit Ratio64.4 %65.3 %
Other Expense Ratio20.9 %20.4 %
Adjusted Operating Income Ratio17.1 %16.8 %


69

(in millions of dollars, except ratios)           
 Three Months Ended June 30 Six Months Ended June 30
 2019 % Change 2018 2019 % Change 2018
Adjusted Operating Revenue           
Premium Income$1,504.5
 6.2 % $1,416.3
 $3,006.4
 5.3 % $2,855.1
Net Investment Income184.1
 (6.3) 196.5
 366.2
 (6.3) 390.7
Other Income36.8
 27.8
 28.8
 71.3
 23.4
 57.8
Total1,725.4
 5.1
 1,641.6
 3,443.9
 4.2
 3,303.6
            
Benefits and Expenses           
Benefits and Change in Reserves for Future Benefits1,017.1
 7.1
 949.3
 1,997.8
 4.6
 1,910.2
Commissions157.8
 4.0
 151.7
 320.8
 2.5
 313.1
Deferral of Acquisition Costs(83.4) (1.9) (85.0) (171.0) (2.0) (174.5)
Amortization of Deferred Acquisition Costs82.6
 5.2
 78.5
 186.5
 11.2
 167.7
Other Expenses297.0
 0.3
 296.0
 603.2
 1.9
 592.1
Total1,471.1
 5.8
 1,390.5
 2,937.3
 4.6
 2,808.6
            
Adjusted Operating Income$254.3
 1.3
 $251.1
 $506.6
 2.3
 $495.0
            
Operating Ratios (% of Premium Income):           
Benefit Ratio67.6%   67.0% 66.5%   66.9%
Other Expense Ratio19.7%   20.9% 20.1%   20.7%
Adjusted Operating Income Ratio16.9%   17.7% 16.9%   17.3%



Unum US Group Disability Operating Results
Shown below are financial results and key performance indicators for Unum US group disability.
(in millions of dollars, except ratios)           
 Three Months Ended June 30 Six Months Ended June 30
 2019 % Change 2018 2019 % Change 2018
Adjusted Operating Revenue           
Premium Income           
Group Long-term Disability$457.2
 4.5 % $437.4
 $910.1
 3.6 % $878.6
Group Short-term Disability187.6
 9.7
 171.0
 376.3
 8.4
 347.3
Total Premium Income644.8
 6.0
 608.4
 1,286.4
 4.9
 1,225.9
Net Investment Income98.9
 (9.2) 108.9
 198.9
 (8.4) 217.1
Other Income34.4
 29.3
 26.6
 66.6
 25.9
 52.9
Total778.1
 4.6
 743.9
 1,551.9
 3.7
 1,495.9

  

        
Benefits and Expenses  

        
Benefits and Change in Reserves for Future Benefits481.5
 3.8
 463.7
 960.6
 3.2
 930.6
Commissions48.4
 6.6
 45.4
 98.7
 4.7
 94.3
Deferral of Acquisition Costs(13.0) 4.8
 (12.4) (24.8) 0.4
 (24.7)
Amortization of Deferred Acquisition Costs13.0
 16.1
 11.2
 25.2
 12.5
 22.4
Other Expenses164.6
 6.6
 154.4
 326.0
 5.6
 308.7
Total694.5
 4.9
 662.3
 1,385.7
 4.1
 1,331.3
            
Adjusted Operating Income$83.6
 2.5
 $81.6
 $166.2
 1.0
 $164.6
            
Operating Ratios (% of Premium Income):           
Benefit Ratio74.7%   76.2% 74.7%   75.9%
Other Expense Ratio25.5%   25.4% 25.3%   25.2%
Adjusted Operating Income Ratio13.0%   13.4% 12.9%   13.4%
            
Persistency:           
Group Long-term Disability

   

 90.5%   90.6%
Group Short-term Disability

   

 90.3%   87.7%

(in millions of dollars, except ratios)
 Three Months Ended March 31
 2020% Change2019
Adjusted Operating Revenue
Premium Income
Group Long-term Disability$463.0  2.2 %$452.9  
Group Short-term Disability203.2  7.7  188.7  
Total Premium Income666.2  3.8  641.6  
Net Investment Income93.4  (6.6) 100.0  
Other Income38.4  19.3  32.2  
Total798.0  3.1  773.8  
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits487.4  1.7  479.1  
Commissions49.9  (0.8) 50.3  
Deferral of Acquisition Costs(12.8) 8.5  (11.8) 
Amortization of Deferred Acquisition Costs13.3  9.0  12.2  
Other Expenses183.9  13.9  161.4  
Total721.7  4.4  691.2  
Adjusted Operating Income$76.3  (7.6) $82.6  
Operating Ratios (% of Premium Income):
Benefit Ratio73.2 %74.7 %
Other Expense Ratio27.6 %25.2 %
Adjusted Operating Income Ratio11.5 %12.9 %
Persistency:
Group Long-term Disability90.6 %90.9 %
Group Short-term Disability86.1 %90.5 %

Premium income was higher in the secondfirst quarter and first six months of 2019 increased2020 compared to the same periodsperiod of 20182019 due to growth in the in-force block resulting from higher prior period sales, growth in both product lines and improved persistency in the group short-term disability product line.partially offset by lower persistency. Net investment income was lower in the secondfirst quarter and first six months of 20192020 relative to the same periodsperiod of 20182019 due to a decline in yield on invested assets, lower miscellaneous investment income, and a decrease in the level of invested assets. Other income increased in the secondfirst quarter and first six months of 20192020 compared to the same periodsperiod of 20182019 due to growth in our fee-based service products, which include family medical leave and ASO products.

Benefits experience was favorable in the secondfirst quarter and first six months of 2019 relative2020 compared to the same periodsperiod of 20182019 due primarily to favorable claim recovery experience in theour group long-term disability product line, partially offset by higher paid claim volumesclaims incidence in both our group long-term and short-term disability product line. Also contributing to the favorable benefits experience for the first six months of 2019 relative to the same prior year period was lower claims incidence in the group long-term disability product line.lines.

Commissions and the deferral of acquisition costs were higher in the second quarter and first six months of 2019 compared to the same periods of 2018 due to sales growth. Partially offsetting the increase in the deferral of acquisition costsslightly lower in the first six monthsquarter of 2019 relative2020 compared to the same period of 2018 were2019 due primarily to lower sales. The deferral of acquisition costs was higher in the first quarter of 2020 compared to the same period of 2019 due to higher deferrable costs related to certain sales-based incentive compensation.compensation costs. The amortization of deferred acquisition costs increased in the secondfirst quarter and first six months


of 20192020 increased relative to the same periodsperiod of 20182019 due to growth in the level of the deferred asset. Our other expense ratio was slightly higher in the secondfirst quarter and first six months of 20192020 increased compared to the same periodsperiod of 20182019 due primarily to an increase in operational investments in our business and growth in our fee-based service products, which was balanced with our continued focus on expense management and operating efficiencies.
70


Unum US Group Life and Accidental Death and Dismemberment Operating Results
Shown below are financial results and key performance indicators for Unum US group life and accidental death and dismemberment.
(in millions of dollars, except ratios)           (in millions of dollars, except ratios) 
Three Months Ended June 30 Six Months Ended June 30 Three Months Ended March 31
2019 % Change 2018 2019 % Change 2018 2020% Change2019
Adjusted Operating Revenue           Adjusted Operating Revenue
Premium Income           Premium Income
Group Life$420.0
 7.4 % $391.1
 $834.4
 5.6 % $790.3
Group Life$414.5  — %$414.4  
Accidental Death & Dismemberment41.7
 8.0
 38.6
 82.7
 7.0
 77.3
Accidental Death & Dismemberment41.7  1.7  41.0  
Total Premium Income461.7
 7.4
 429.7
 917.1
 5.7
 867.6
Total Premium Income456.2  0.2  455.4  
Net Investment Income27.0
 (0.7) 27.2
 52.6
 (2.6) 54.0
Net Investment Income25.7  0.4  25.6  
Other Income0.7
 (36.4) 1.1
 1.3
 (40.9) 2.2
Other Income0.5  (16.7) 0.6  
Total489.4
 6.9
 458.0
 971.0
 5.1
 923.8
Total482.4  0.2  481.6  

           
Benefits and Expenses           Benefits and Expenses
Benefits and Change in Reserves for Future Benefits336.8
 11.5
 302.0
 659.7
 7.8
 611.8
Benefits and Change in Reserves for Future Benefits322.1  (0.2) 322.9  
Commissions37.8
 8.3
 34.9
 75.4
 5.3
 71.6
Commissions36.4  (3.2) 37.6  
Deferral of Acquisition Costs(10.1) 4.1
 (9.7) (19.2) (3.5) (19.9)Deferral of Acquisition Costs(9.5) 4.4  (9.1) 
Amortization of Deferred Acquisition Costs9.2
 3.4
 8.9
 18.7
 3.9
 18.0
Amortization of Deferred Acquisition Costs9.9  4.2  9.5  
Other Expenses53.0
 (3.1) 54.7
 106.3
 (3.8) 110.5
Other Expenses53.1  (0.4) 53.3  
Total426.7
 9.2
 390.8
 840.9
 6.2
 792.0
Total412.0  (0.5) 414.2  
           
Adjusted Operating Income$62.7
 (6.7) $67.2
 $130.1
 (1.3) $131.8
Adjusted Operating Income$70.4  4.5  $67.4  
           
Operating Ratios (% of Premium Income):           Operating Ratios (% of Premium Income):
Benefit Ratio72.9%   70.3% 71.9%   70.5%Benefit Ratio70.6 %70.9 %
Other Expense Ratio11.5%   12.7% 11.6%   12.7%Other Expense Ratio11.6 %11.7 %
Adjusted Operating Income Ratio13.6%   15.6% 14.2%   15.2%Adjusted Operating Income Ratio15.4 %14.8 %
           
Persistency:           Persistency:
Group Life

   

 91.2%   90.9%Group Life88.4 %91.0 %
Accidental Death & Dismemberment

   

 90.1%   89.2%Accidental Death & Dismemberment87.9 %90.3 %

Premium income increased in the secondfirst quarter and first six monthsof 2020 was generally consistent with the same period of 2019, compared towith growth in the same periods of 2018 due toin-force block resulting from prior period sales growth and favorablemostly offset by lower persistency. Net investment income was lowerslightly higher in the secondfirst quarter and first six months of 2019 compared2020 relative to the same periodsperiod of 20182019 due to a higher level of invested assets and higher miscellaneous investment income, partially offset by a decline in yield on invested assets and lower miscellaneous investment income, partially offset by an increase in the level of invested assets.

Benefits experience was unfavorable in the secondfirst quarter and first six months of 20192020 was favorable compared to the same period of 2018, driven2019 due primarily by higher average claim size.to lower claims incidence in the group accidental death and dismemberment product line.



Commissions were higherlower in the secondfirst quarter and first six months of 20192020 compared to the same periodsperiod of 20182019 due primarily to prior period sales growth.lower sales. The deferral of acquisition costs was higher in the secondfirst quarter of 2019 relative2020 compared to the same period of 20182019 due to higher deferrable expenses, partially offset by lower sales. The deferral of acquisition costs was lower in the first six months of 2019 relative to the same period of 2018 due to lower deferrable expenses related to certain sales-based incentive compensation costs. The amortization of deferred acquisition costs increased in the secondfirst quarter and first six months of 20192020 relative to the same periodsperiod of 20182019 due to growth in the level of the deferred asset. The other expense ratio improvedwas generally consistent in the secondfirst quarter and first six months of 20192020 compared to the same periodsperiod of 2018 due to the timing of certain expenses and our continued focus on expense management and operating efficiencies balanced with operational investments in our business.2019.
71


Unum US Supplemental and Voluntary Operating Results
Shown below are financial results and key performance indicators for Unum US supplemental and voluntary product lines.
(in millions of dollars, except ratios)
 Three Months Ended March 31
 2020% Change2019
Adjusted Operating Revenue
Premium Income
Individual Disability$109.5  (1.1)%$110.7  
Voluntary Benefits230.4  (1.7) 234.4  
Dental and Vision65.4  9.4  59.8  
Total Premium Income405.3  0.1  404.9  
Net Investment Income60.5  7.1  56.5  
Other Income1.3  (23.5) 1.7  
Total467.1  0.9  463.1  
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits175.1  (2.0) 178.7  
Commissions68.0  (9.5) 75.1  
Deferral of Acquisition Costs(57.3) (14.1) (66.7) 
Amortization of Deferred Acquisition Costs84.5  2.8  82.2  
Other Expenses81.7  (10.7) 91.5  
Total352.0  (2.4) 360.8  
Adjusted Operating Income$115.1  12.5  $102.3  
Operating Ratios (% of Premium Income):
Benefit Ratios:
Individual Disability52.1 %49.9 %
Voluntary Benefits32.7 %35.4 %
Dental and Vision65.1 %67.7 %
Other Expense Ratio20.2 %22.6 %
Adjusted Operating Income Ratio28.4 %25.3 %
Persistency:
Individual Disability88.9 %90.3 %
Voluntary Benefits72.4 %73.0 %
Dental and Vision81.9 %84.3 %
(in millions of dollars, except ratios)           
 Three Months Ended June 30 Six Months Ended June 30
 2019 % Change 2018 2019 % Change 2018
Adjusted Operating Revenue           
Premium Income           
Individual Disability$108.5
 3.6 % $104.7
 $219.2
 4.6 % $209.6
Voluntary Benefits228.6
 2.1
 223.9
 463.0
 2.0
 453.7
Dental and Vision60.9
 22.8
 49.6
 120.7
 22.8
 98.3
Total Premium Income398.0
 5.2
 378.2
 802.9
 5.4
 761.6
Net Investment Income58.2
 (3.6) 60.4
 114.7
 (4.1) 119.6
Other Income1.7
 54.5
 1.1
 3.4
 25.9
 2.7
Total457.9
 4.1
 439.7
 921.0
 4.2
 883.9

           
Benefits and Expenses           
Benefits and Change in Reserves for Future Benefits198.8
 8.3
 183.6
 377.5
 2.6
 367.8
Commissions71.6
 0.3
 71.4
 146.7
 (0.3) 147.2
Deferral of Acquisition Costs(60.3) (4.1) (62.9) (127.0) (2.2) (129.9)
Amortization of Deferred Acquisition Costs60.4
 3.4
 58.4
 142.6
 12.0
 127.3
Other Expenses79.4
 (8.6) 86.9
 170.9
 (1.2) 172.9
Total349.9
 3.7
 337.4
 710.7
 3.7
 685.3
         

  
Adjusted Operating Income$108.0
 5.6
 $102.3
 $210.3
 5.9
 $198.6
            
Operating Ratios (% of Premium Income):           
Benefit Ratios:           
Individual Disability53.5%   50.0% 51.7%   50.5%
Voluntary Benefits42.5%   43.3% 38.9%   42.8%
Dental and Vision71.6%   69.4% 69.7%   69.0%
Other Expense Ratio19.9%   23.0% 21.3%   22.7%
Adjusted Operating Income Ratio27.1%   27.0% 26.2%   26.1%
            
Persistency:           
Individual Disability

   

 90.3%   90.5%
Voluntary Benefits

   

 72.7%   76.4%
Dental and Vision      84.7%   85.2%



Premium income increased in the secondfirst quarter and first six monthsof 2020 was generally consistent with the same period of 2019, with growth in the dental and vision product line mostly offset by lower persistency in all product lines. Net investment income was higher in the first quarter of 2020 compared to the same periodsperiod of 2018, driven by2019 due to a higher sales, particularly in voluntary benefitslevel of invested assets and dental and vision. Nethigher miscellaneous investment income, was lower in the second quarter and first six months of 2019 relative to the same periods of 2018 due topartially offset by a decline in yield on invested assets and lower miscellaneous investment income, partially offset by growth in the level of invested assets. Other income is comprised primarily of surrender fees in our voluntary benefits product line.

Benefits experience was less favorable for the individual disability product line was less favorable in the secondfirst quarter and first six months of 2019 compared to the same periods of 2018 due primarily to unfavorable claims activity and less favorable mortality experience. Benefits experience for voluntary benefits in the second quarter and first six months of 2019 was favorable compared to the same periods of 2018 due to favorable claims experience in our disability and hospital indemnity products. Also contributing to the favorable benefit experience for the first six months of 20192020 compared to the same period of 20182019 due to higher claims incidence. Benefits experience for voluntary benefits was favorable in the first quarter of 2020 compared to the same period of 2019 due primarily to the release of active life reserves resulting from a higher level of policy terminations. Benefits experience for the dental and vision product line was favorable in the second quarter and first six months of 2019 was less favorable compared to the same periods of 2018 due to a higher average claims size.

Commissions were slightly higher for the second quarter of 20192020 compared to the same period of 2018 due to higher sales. The2019 driven by lower claims incidence.

72


Commissions and the deferral of acquisition costs for the second quarter and first six months of 2019, as well as commissionswere lower for the first six monthsquarter of 2019, were lower2020 relative to the same periodsperiod of 20182019 due primarily to lower sales in the voluntary benefits product line and a continued shift in product mix that resulted in lower first-yearfirst year commissions, and a lower corresponding deferral of acquisition costs.partially offset by higher sales in the individual disability product line. The amortization of deferred acquisition costs increased in the secondfirst quarter and first six months of 2019 relative to the same periods of 2018 due to the growth in the level of deferred asset across all product lines. Also contributing to the increase in the amortization of deferred acquisition costs in the first six months of 20192020 relative to the same period of 2018 was2019 due primarily to the impact of a higher level of policy terminations, particularly in the voluntary benefitsindividual disability product line. Our other expense ratio decreasedimproved in the secondfirst quarter and first six months of 2019 compared2020 relative to the same periodsperiod of 20182019 due primarily to the timing of certain expenses and our continued focus on expense management and operating efficiencies balanced with operational investments in our business.

Sales
(in millions of dollars)
 Three Months Ended March 31
 2020% Change2019
Sales by Product
Group Disability and Group Life and AD&D
Group Long-term Disability$31.4  (14.9)%$36.9  
Group Short-term Disability14.2  (32.1) 20.9  
Group Life and AD&D28.1  (30.8) 40.6  
Subtotal73.7  (25.1) 98.4  
Supplemental and Voluntary
Individual Disability22.7  50.3  15.1  
Voluntary Benefits128.6  (15.6) 152.4  
Dental and Vision10.8  (13.6) 12.5  
Subtotal162.1  (9.9) 180.0  
Total Sales$235.8  (15.3) $278.4  
Sales by Market Sector
Group Disability and Group Life and AD&D
Core Market (< 2,000 employees)$51.2  5.1 %$48.7  
Large Case Market22.5  (54.7) 49.7  
Subtotal73.7  (25.1) 98.4  
Supplemental and Voluntary162.1  (9.9) 180.0  
Total Sales$235.8  (15.3) $278.4  
(in millions of dollars)           
 Three Months Ended June 30 Six Months Ended June 30
 2019 % Change 2018 2019 % Change 2018
Sales by Product           
Group Disability and Group Life and AD&D           
Group Long-term Disability$48.7
 18.8 % $41.0
 $85.6
 20.4 % $71.1
Group Short-term Disability36.6
 55.1
 23.6
 57.5
 44.1
 39.9
Group Life and AD&D53.8
 (1.3) 54.5
 94.4
 (4.7) 99.1
Subtotal139.1
 16.8
 119.1
 237.5
 13.0
 210.1
Supplemental and Voluntary        

  
Individual Disability14.4
 (23.8) 18.9
 29.5
 (19.8) 36.8
Voluntary Benefits54.0
 12.7
 47.9
 206.4
 2.5
 201.4
Dental and Vision14.2
 20.3
 11.8
 26.7
 11.3
 24.0
Subtotal82.6
 5.1
 78.6
 262.6
 0.2
 262.2
Total Sales$221.7

12.1

$197.7
 $500.1
 5.9
 $472.3
            
Sales by Market Sector           
Group Disability and Group Life and AD&D           
Core Market (< 2,000 employees)$83.6
 3.3 % $80.9
 $132.3
 (2.6)% $135.8
Large Case Market55.5
 45.3
 38.2
 105.2
 41.6
 74.3
Subtotal139.1
 16.8
 119.1
 237.5
 13.0
 210.1
Supplemental and Voluntary82.6
��5.1
 78.6
 262.6
 0.2
 262.2
Total Sales$221.7
 12.1
 $197.7
 $500.1
 5.9
 $472.3



Group sales increased indeclined during the secondfirst quarter and first six months of 20192020 compared to the same periodsperiod of 2018, primarily driven by an increase in2019 due to lower new customer sales to existing customers in both ourthe core market, which we define as employee groups with fewer than 2,000 employees, and ourthe large case market, segments.partially offset by higher sales to existing customers in the core market and growth in our medical stop-loss product. The sales mix in the group market sector for the first sixthree months of 20192020 was approximately 5669 percent core market and 4431 percent large case market.

Individual disability sales, which are primarily concentrated in the multi-life market, decreasedincreased in the secondfirst quarter and first six months of 20192020 compared to the same periodsperiod of 2018 driven by lower2019 due to higher sales to both new and existing customers. SalesVoluntary benefits sales decreased during the first quarter of voluntary benefits increased2020 compared to the first quarter of 2019 due to lower new and existing sales in both the core and large case markets. Dental and vision sales declined in the secondfirst quarter and first six months of 20192020 compared to the same periodsperiod of 20182019 driven primarily by higherlower sales to both new and existing customerscustomers.

We experienced disruption to the sales activity in certain of our Unum US product lines during the large case market, partially offset by a decreasefirst quarter of 2020 due to COVID-19, which we believe contributed partly to the decline in sales to both new and existing customers in the core market. Dental and vision sales increased in the second quarter and first six months of 2019results compared to the same periodsfirst quarter of 2018, driven by higher sales to both new and existing customers.2019. Further discussion of COVID-19 is contained herein in "Executive Summary" in this Item 2
73


Segment Outlook

We remain committed to offering consumers a broad set of financial protection benefit products at the worksite. WeDuring 2020, we will continue to invest in a unique customer experience defined by simplicity, empathy, and deep industry expertise through the re-design of our processes and the increased utilization of digital capabilities and technology to enhance enrollment, underwriting, and claims processing. WeIn addition, we will continue to focus on the expansion of products, which includes dental and vision, medical stop-loss, andour portfolio of products. In particular, we believe our significant investment in leave management services while also introducing new voluntary benefitswill allow for substantial growth opportunities, particularly with larger employers, and stronger persistency in our core products. Additionally,With respect to smaller employers, we will focus on client expansion, consumer engagement,continue to enhance our distribution model and collaborative partnerships, all underpinned by strong risk management.provide comprehensive consumer-focused products. We believe our active client management and differentiated integrated customer experience across our product lines, underpinned by strong risk management, will continue to enable us to grow our market.market over the long-term.

We anticipate continued stable adjusted operatingGiven the uncertainty caused by the COVID-19 pandemic, we expect to experience further disruption in our sales activity, persistency and ultimately premium income growth in 2019, with disciplined sales and premium growth, consistent risk management, and improving operational efficiency. We believe our underlying profitability will remain strong throughout the year, driven primarily by our continued product mix shift, expense efficiencies, and consistent operating effectiveness.

2020. The low interest rate environment continues to place pressure on our profit margins by impacting net investment income yields as well as potentially discount rates on our insurance liabilities. Our net investment income may continue to be unfavorably impacted by fluctuations in miscellaneous investment income and lower asset levels resulting from improved capital efficiency.income. As part of our continued pricing discipline and our reserving methodology, we continuously monitor emerging interest rate experience and adjust our pricing and reserve discount rates, as appropriate. We expect thatcould also experience claims volatility, particularly in our underwriting results for the remainder of 2019 will continue at a level generally consistent with 2018.short-term disability, leave management, and group life products as well as potential disruption in our overall claims processing activity which can result in short-term unfavorable experience. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly.



74


Unum International Segment

The Unum International segment is comprised of our operations in both the United Kingdom and Poland and includesPoland. Our Unum UK products include insurance for group long-term disability, group life, and supplemental lines of business, which includeincludes dental, individual disability, and critical illness and ourproducts. Our Unum Poland products.products include insurance for individual and group life with accident and health riders. Unum International's products are sold primarily through field sales personnel and independent brokers and consultants.
Operating Results
Shown below are financial results and key performance indicators for the Unum International segment.
Certain prior year amounts were reclassified to conform to current year presentation.
(in millions of dollars, except ratios)           (in millions of dollars, except ratios)
Three Months Ended June 30 Six Months Ended June 30 Three Months Ended March 31
2019 % Change 2018 2019 % Change 2018 2020% Change2019
Adjusted Operating Revenue           Adjusted Operating Revenue
Premium Income           Premium Income
Unum UKUnum UK
Group Long-term Disability$89.6
 (0.1)% $89.7
 $177.5
 (1.7)% $180.5
Group Long-term Disability$90.8  3.3 %$87.9  
Group Life28.8
 3.2
 27.9
 56.0
 (0.9) 56.5
Group Life30.9  13.6  27.2  
Supplemental40.2
 88.7
 21.3
 79.1
 90.6
 41.5
Supplemental23.9  10.1  21.7  
Unum PolandUnum Poland19.0  10.5  17.2  
Total Premium Income158.6
 14.2
 138.9
 312.6
 12.2
 278.5
Total Premium Income164.6  6.9  154.0  
Net Investment Income44.8
 39.6
 32.1
 69.6
 16.6
 59.7
Net Investment Income26.5  6.9  24.8  
Other Income0.3
 N.M.
 
 0.3
 N.M.
 
Total203.7
 19.1
 171.0
 382.5
 13.1
 338.2
Total191.1  6.9  178.8  
           
Benefits and Expenses           Benefits and Expenses
Benefits and Change in Reserves for Future Benefits130.8
 22.7
 106.6
 237.3
 14.7
 206.9
Benefits and Change in Reserves for Future Benefits128.6  20.8  106.5  
Commissions11.5
 19.8
 9.6
 23.6
 24.2
 19.0
Commissions12.3  1.7  12.1  
Deferral of Acquisition Costs(3.7) 54.2
 (2.4) (6.6) 69.2
 (3.9)Deferral of Acquisition Costs(3.0) 3.4  (2.9) 
Amortization of Deferred Acquisition Costs1.8
 (14.3) 2.1
 3.6
 (14.3) 4.2
Amortization of Deferred Acquisition Costs1.8  —  1.8  
Other Expenses32.6
 18.5
 27.5
 64.8
 18.7
 54.6
Other Expenses32.0  (0.6) 32.2  
Total173.0
 20.6
 143.4
 322.7
 14.9
 280.8
Total171.7  14.7  149.7  
           
Adjusted Operating Income$30.7
 11.2
 $27.6
 $59.8
 4.2
 $57.4
Adjusted Operating Income$19.4  (33.3) $29.1  
           
N.M. = not a meaningful percentage           
Foreign Currency Translation

The functional currencies of Unum UK and Unum Poland are the British pound sterling and Polish zloty, respectively. Premium income, net investment income, claims, and expenses are received or paid in the functional currency, and we hold functional currency-denominated assets to support functional currency-denominated policy reserves and liabilities. We translate functional currency-denominated financial statement items into dollars for our consolidated financial reporting. We translate income statement items using an average exchange rate for the reporting period, and we translate balance sheet items using the exchange rate at the end of the period. We report unrealized foreign currency translation gains and losses in accumulated other comprehensive income in our consolidated balance sheets.

Fluctuations in exchange rates have an effect on Unum International's reported financial results and our consolidated financial results. In periods when the functional currency strengthens relative to the preceding period, translation increases current period results relative to the prior period. In periods when the functional currency weakens, translation decreases current period results relative to the prior period.


75


Unum UK Operating Results

Shown below are financial results and key performance indicators for the Unum UK product lines in functional currency.

(in millions of pounds, except ratios)
 Three Months Ended March 31
 2020% Change2019
Adjusted Operating Revenue
Premium Income
Group Long-term Disability£71.0  5.2 %£67.5  
Group Life24.2  16.3  20.8  
Supplemental18.6  11.4  16.7  
Total Premium Income113.8  8.4  105.0  
Net Investment Income19.3  8.4  17.8  
Total133.1  8.4  122.8  
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits91.6  24.3  73.7  
Commissions7.1  1.4  7.0  
Deferral of Acquisition Costs(1.2) 9.1  (1.1) 
Amortization of Deferred Acquisition Costs1.4  —  1.4  
Other Expenses20.5  1.5  20.2  
Total119.4  18.0  101.2  
Adjusted Operating Income£13.7  (36.6) £21.6  
Weighted Average Pound/Dollar Exchange Rate1.277  1.306  
Operating Ratios (% of Premium Income):
Benefit Ratio80.5 %70.2 %
Other Expense Ratio18.0 %19.2 %
Adjusted Operating Income Ratio12.0 %20.6 %
Persistency:
Group Long-term Disability90.1 %89.3 %
Group Life86.3 %85.7 %
Supplemental91.2 %91.5 %
(in millions of pounds, except ratios)           
 Three Months Ended June 30 Six Months Ended June 30
 2019 % Change 2018 2019 % Change 2018
Adjusted Operating Revenue           
Premium Income           
Group Long-term Disability£69.7
 5.6 % £66.0
 £137.2
 4.6 % £131.2
Group Life22.5
 9.8
 20.5
 43.3
 5.4
 41.1
Supplemental17.4
 11.5
 15.6
 34.1
 13.3
 30.1
Total Premium Income109.6
 7.3
 102.1
 214.6
 6.0
 202.4
Net Investment Income33.5
 42.6
 23.5
 51.3
 18.2
 43.4
Other Income0.1
 N.M.
 
 0.1
 N.M.
 
Total143.2
 14.0
 125.6
 266.0
 8.2
 245.8
            
Benefits and Expenses           
Benefits and Change in Reserves for Future Benefits93.8
 19.8
 78.3
 167.5
 11.4
 150.4
Commissions6.6
 (5.7) 7.0
 13.6
 (1.4) 13.8
Deferral of Acquisition Costs(1.8) 
 (1.8) (2.9) 
 (2.9)
Amortization of Deferred Acquisition Costs1.3
 (18.8) 1.6
 2.7
 (12.9) 3.1
Other Expenses20.6
 2.5
 20.1
 40.8
 3.0
 39.6
Total120.5
 14.5
 105.2
 221.7
 8.7
 204.0
   

        
Adjusted Operating Income£22.7
 11.3
 £20.4
 £44.3
 6.0
 £41.8
            
Weighted Average Pound/Dollar Exchange Rate1.286
   1.353
 1.296
   1.373
            
Operating Ratios (% of Premium Income):           
Benefit Ratio85.6%   76.7% 78.1%   74.3%
Other Expense Ratio18.8%   19.7% 19.0%   19.6%
Adjusted Operating Income Ratio20.7%   20.0% 20.6%   20.7%
            
Persistency:           
Group Long-term Disability

   

 89.5%   86.9%
Group Life

   

 88.4%   84.1%
Supplemental

   

 92.2%   92.3%
            
N.M. = not a meaningful percentage           

Premium income increasedwas higher in the secondfirst quarter and first six months of 20192020 compared to the same periodsperiod of 2018 driven by2019 due to sales growth, higher overall persistency, sales growth, and the impact of rate increases in the group long-term disability product line.

Net investment income was higher in the secondfirst quarter and first six months of 2019 relative2020 compared to the same prior year periodsperiod of 2019 due to higher miscellaneous investment income resulting from ainflation index-linked bonds and higher than normal level of bond calls, and a higher level of invested assets,miscellaneous income, partially offset by a lowerdecline in the yield on fixed-rate bonds. Investment income fromOur investments in inflation index-linked bonds which we invest in to support the claim reserves associated with certain of our group policies that provide for inflation-linked increases in benefits, was higher in the second quarter of 2019 but lower in the first six months of 2019 relative to the same


periods of 2018. benefits. The changeincrease in net investment income attributable to these index-linked bonds is generallywas more than offset by a changean increase in the reserves for future claimsclaim payments related to the inflation index-linked group long-term disability and group life policies.

Benefits experience was unfavorable in the secondfirst quarter and first six months of 20192020 relative to the same prior year periodsperiod due to unfavorable mortality experience and a reductionhigher claims incidence in the group critical illness product line and lower claim reserve discount rateresolutions in the group long-term disability product line due to recognize the impact on future portfolio yields from the higher than normal level of bond calls experienced during the second quarter of 2019. The comparison for the second quarter and first six months of 2019 relativedisruption in our claims processes related to COVID-19. Also contributing to the same prior year periodsunfavorable experience was also impacted byhigher inflation-linked movementsincreases in benefits related to our group products.
76


Commissions decreasedand the deferral of acquisition costs were slightly higher in the secondfirst quarter and first six months of 20192020 relative to the same prior year periodsperiod due primarily to a lower commission rate in certain products, partially offset by higher overall sales. The deferralamortization of deferred acquisition costs in the first quarter of 2020 was consistent with the same prior year period. The other expense ratio was lower in the secondfirst quarter and first six months of 20192020 relative to the same prior year periods. The amortization of deferred acquisition costs decreased in the second quarter and first six months of 2019 relative to the same prior year periods due a decline in the level of the deferred asset. The other expense ratio was lower for the second quarter and first six months of 2019 relative to the prior year periodsperiod due to the increase in premium incomehigher premiums and our continued focus on expense management and operating efficiencies.management.

Sales
Certain prior year amounts below were reclassified to conform to current year presentation.
(in millions of dollars and pounds)           (in millions of dollars and pounds)
Three Months Ended June 30 Six Months Ended June 30Three Months Ended March 31
2019 % Change 2018 2019 % Change 2018 2020% Change2019
Unum International Sales by Product           Unum International Sales by Product
Unum UKUnum UK
Group Long-term Disability$12.4
 (20.5)% $15.6
 $20.6
 (12.0)% $23.4
Group Long-term Disability$8.6  4.9 %$8.2  
Group Life6.8
 19.3
 5.7
 12.9
 26.5
 10.2
Group Life5.6  (8.2) 6.1  
Supplemental10.5
 50.0
 7.0
 18.8
 59.3
 11.8
Supplemental7.1  44.9  4.9  
Unum PolandUnum Poland2.6  (23.5) 3.4  
Total Sales$29.7
 4.9
 $28.3
 $52.3
 15.2
 $45.4
Total Sales$23.9  5.8  $22.6  
           
Unum International Sales by Market Sector           Unum International Sales by Market Sector
Unum UKUnum UK
Group Long-term Disability and Group Life           Group Long-term Disability and Group Life
Core Market (< 500 employees)$9.9
 (9.2)% $10.9
 $18.4
 (0.5)% $18.5
Core Market (< 500 employees)$9.1  7.1 %$8.5  
Large Case Market9.3
 (10.6) 10.4
 15.1
 
 15.1
Large Case Market5.1  (12.1) 5.8  
Subtotal19.2
 (9.9) 21.3
 33.5
 (0.3)
33.6
Subtotal14.2  (0.7) 14.3  
Supplemental10.5
 50.0
 7.0
 18.8
 59.3
 11.8
Supplemental7.1  44.9  4.9  
Unum PolandUnum Poland2.6  (23.5) 3.4  
Total Sales$29.7
 4.9
 $28.3
 $52.3
 15.2
 $45.4
Total Sales$23.9  5.8  $22.6  
           
Unum UK Sales by Product           Unum UK Sales by Product
Group Long-term Disability£9.7
 (14.9)% £11.4
 £15.9
 (6.5)% £17.0
Group Long-term Disability£6.7  8.1 %£6.2  
Group Life5.3
 29.3
 4.1
 10.0
 35.1
 7.4
Group Life4.4  (6.4) 4.7  
Supplemental5.7
 11.8
 5.1
 9.5
 11.8
 8.5
Supplemental5.4  42.1  3.8  
Total Sales£20.7

0.5

£20.6
 £35.4
 7.6
 £32.9
Total Sales£16.5  12.2  £14.7  
           
Unum UK Sales by Market Sector           Unum UK Sales by Market Sector
Group Long-term Disability and Group Life           Group Long-term Disability and Group Life
Core Market (< 500 employees)£7.8
 (2.5)% £8.0
 £14.3
 6.7 % £13.4
Core Market (< 500 employees)£7.2  10.8 %£6.5  
Large Case Market7.2
 (4.0) 7.5
 11.6
 5.5
 11.0
Large Case Market3.9  (11.4) 4.4  
Subtotal15.0
 (3.2) 15.5
 25.9
 6.1
 24.4
Subtotal11.1  1.8  10.9  
Supplemental5.7
 11.8
 5.1
 9.5
 11.8
 8.5
Supplemental5.4  42.1  3.8  
Total Sales£20.7

0.5

£20.6
 £35.4
 7.6
 £32.9
Total Sales£16.5  12.2  £14.7  


The following discussion of sales results relates only to our Unum UK product lines and is based on functional currency.

Group long-term disability sales decreased duringwere higher in the secondfirst quarter andof 2020 compared to the first six monthsquarter of 2019, relative to the same periods of 2018, with lowerhigher sales to new customers, in our core market, which we define as employee groups with fewer than 500 employees, andpartially offset by lower sales to existing customerscustomers.

Group life sales declined in both our core and large case markets. Partially offsetting the decrease during the secondfirst quarter of 20192020 compared to the same period of 2018 were higher2019 driven by lower sales to new customers, in the large case market.partially offset by higher sales to existing customers.
77


Group lifeSupplemental sales were higher in the secondfirst quarter and first six months of 2019 relative2020 compared to the same periods of 2018, with an increase in sales to new customers in both the core and large case markets and an increase in sales to existing customers in the core market. Partially offsetting the increase during the secondfirst quarter of 2019 compared to the same period of 2018 were lower sales to existing customers in the large case market.

Supplemental sales increased during the second quarter of 2019 relative to the same period of 2018 due primarily to higher sales in the group critical illness product line. Supplemental sales were higher during the first six months of 2019 compared to the same prior year period due to higher sales in the group critical illness product line, partially offset by lower sales in the dental product line.

Segment Outlook

We are committed to driving growth in the Unum International segment and will build on the capabilities that we believe will generate growth and profitability in our businesses. ExpandingWithin our Unum UK line of business, expanding our group long-term disability market position remains a significant priority. CompletingIn addition, we will continue to focus on increasing participation levels in the integration of our Unum Poland businesslarge case segment while also developing new distribution and growing that business throughservices to reach new small case clients. We will also continue the expansion of its product offerings is also a significant opportunity. Other key priorities, specifically for our Unum UK business, include the continued disciplined implementation of price increases across interest sensitive product lines, which has been successful in offsetting pressure from lower interest rates and heightened disability claims experience, while maintaining solid persistency results and continuing to follow awill maintain our disciplined approach to new sales activity in the competitive pricing environment. We intend to build upon the strong sales momentum we have seen inapproach. Within our group critical illness and dental products through increased participation rates as well as accelerate growth in our group lifeUnum Poland line of business. We have simplified our processes and operations to deliver efficiencies and further improvements to customer service and remain focused on risk discipline. The investments that we have made in the operating model for our UK business, have significantly improved our operational effectiveness and we will leverage our U.S. and U.K. expertise to grow existing distribution channels and expand our current product offerings. We continue to reinvest a portion of these expense savings to build marketinginvest in digital capabilities, technology, and digital capabilities,product enhancements which we believe will drive sustainable growth throughover the developmentlong term.

Given the uncertainty caused by the COVID-19 pandemic and the ongoing negotiations following the recent withdrawal of new distribution capabilities and reaching new customers.

Negotiations regarding the U.K.'s formal notice to withdraw from the EU are continuingwe expect to generate uncertaintyexperience further disruption to our financial results in 2020. Sales activity could be lower and we could also experience claims volatility in our group life and disability product lines. Uncertainty in the U.K. economy. The magnitude and longevity of potential negative economic impacts oneconomy may continue to pressure our growth will depend onexpectations in the agreements reached by the U.K.near-term and EU as a result of exit negotiations and the resulting response of the U.K. marketplace, butmay also lead to lower claim discount rates. However, we believe we are well positioned to capitalize on future growth opportunities as these negotiations are resolved and the operating environment improves. Overall, we expect the economic conditions experienced in 2018 to continue for the U.K., with lower economic growth, wage inflation, and interest rates presenting challenges in the short to medium term.

We expect the current environment to continue to have a negative impact on our growth expectations in the near-term and may also lead to a higher rate of claim incidence, lower levels of claim recoveries, or lower claim discount rates. As part of our continued pricing discipline and our reserving strategy, we continuously monitor emerging interest rate experience and adjust our pricing and reserve discount rates, as appropriate. We will likely continue to experience volatility in net investment income and our benefit ratio due to fluctuations in the level of inflation in the U.K.,; however, we do not expect this to have a significant impact on adjusted operating income. There are no indications currently that capital requirements for our U.K. operations will change due to the recent withdrawal of the U.K. from the EU, but economic conditions may in the near term cause volatility in our solvency ratios. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly to respond to external challenges.



78


Colonial Life Segment

The Colonial Life segment includes insurance for accident, sickness, and disability products, which includes our expanded dental and vision products, life products, and cancer and critical illness products issued primarily by Colonial Life & Accident Insurance Company and marketed to employees, on both a group and an individual basis, at the workplace through an independent contractor agency sales force and brokers.
Operating Results
Shown below are financial results and key performance indicators for the Colonial Life segment.
(in millions of dollars, except ratios)  
 Three Months Ended March 31
 2020% Change2019
Adjusted Operating Revenue
Premium Income
Accident, Sickness, and Disability$249.3  2.9 %$242.2  
Life93.8  7.1  87.6  
Cancer and Critical Illness91.6  2.3  89.5  
Total Premium Income434.7  3.7  419.3  
Net Investment Income37.7  2.2  36.9  
Other Income0.3  (50.0) 0.6  
Total472.7  3.5  456.8  
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits228.0  6.4  214.2  
Commissions93.0  (1.5) 94.4  
Deferral of Acquisition Costs(79.4) (4.6) (83.2) 
Amortization of Deferred Acquisition Costs66.7  2.8  64.9  
Other Expenses83.3  2.5  81.3  
Total391.6  5.4  371.6  
Adjusted Operating Income$81.1  (4.8) $85.2  
Operating Ratios (% of Premium Income):
Benefit Ratio52.4 %51.1 %
Other Expense Ratio19.1 %19.4 %
Adjusted Operating Income Ratio18.7 %20.3 %
Persistency:
Accident, Sickness, and Disability73.0 %73.4 %
Life83.0 %83.3 %
Cancer and Critical Illness80.9 %81.2 %
(in millions of dollars, except ratios)           
 Three Months Ended June 30 Six Months Ended June 30
 2019 % Change 2018 2019 % Change 2018
Adjusted Operating Revenue           
Premium Income           
Accident, Sickness, and Disability$242.4
 6.0 % $228.6
 $484.6
 5.4 % $459.9
Life88.3
 8.3
 81.5
 175.9
 8.2
 162.5
Cancer and Critical Illness90.2
 5.7
 85.3
 179.7
 4.9
 171.3
Total Premium Income420.9
 6.4
 395.4
 840.2
 5.9
 793.7
Net Investment Income37.2
 (7.5) 40.2
 74.1
 (4.4) 77.5
Other Income0.7
 133.3
 0.3
 1.3
 116.7
 0.6
Total458.8
 5.3
 435.9
 915.6
 5.0
 871.8
            
Benefits and Expenses           
Benefits and Change in Reserves for Future Benefits216.2
 7.2
 201.6
 430.4
 5.7
 407.3
Commissions94.9
 4.2
 91.1
 189.3
 4.4
 181.3
Deferral of Acquisition Costs(83.2) 6.3
 (78.3) (166.4) 6.3
 (156.6)
Amortization of Deferred Acquisition Costs67.2
 12.8
 59.6
 132.1
 10.3
 119.8
Other Expenses79.3
 2.6
 77.3
 160.6
 4.0
 154.4
Total374.4
 6.6
 351.3
 746.0
 5.6
 706.2
   
        
Adjusted Operating Income$84.4
 (0.2) $84.6
 $169.6
 2.4
 $165.6
            
Operating Ratios (% of Premium Income):           
Benefit Ratio51.4%   51.0% 51.2%   51.3%
Other Expense Ratio18.8%   19.5% 19.1%   19.5%
Adjusted Operating Income Ratio 
20.1%   21.4% 20.2%   20.9%
            
Persistency:           
Accident, Sickness, and Disability

   

 73.2%   74.2%
Life

   

 83.3%   83.8%
Cancer and Critical Illness

   

 81.2%   82.6%



Premium income increased in the secondfirst quarter and first six months of 2019 relative2020 compared to the same periods of 2018prior year period due to growth in the in-force block resulting from prior period sales growth, which includes the expansion of our dental and vision products, offset partially by a lower level of persistency. Net investment income declinedincreased in the secondfirst quarter and first six months of 2019 compared2020 relative to the same periods of 2018prior year due to lower miscellaneous investment income and a lower yield on invested assets, partially offset by an increase in the level of invested assets and higher miscellaneous investment income, partially offset by a decline in the yield on invested assets.

Benefits experience in the secondfirst quarter of 20192020 was unfavorable compared to the same period of 2018, driven primarily by higher claims incidence2019, with unfavorable experience in our cancerthe accident, sickness, and critical illnessdisability line of business partially offset by lower claims incidence in our life line of business. Benefitsfavorable experience in the first six months of 2019 was generally consistent with the same period of 2018.cancer and critical illness and life product lines.
79


Commissions and the deferral of acquisition costs were higherlower in the secondfirst quarter and first six months of 20192020 relative to the same periodsperiod of 20182019 due to prior period sales growth.lower sales. The amortization of deferred acquisition costs increased during the secondfirst quarter and first six months of 20192020 relative to the same periodsperiod of 20182019 due to growth in the level of the deferred asset and the impact of the prospective unlocking for future experience relative to assumptions for our interest-sensitive voluntary life products.. The other expense ratio was lowerimproved in the secondfirst quarter and first six monthsof 2020 relative to the same period of 2019 due to an increase in premium income and our continued focus on expense management and operating efficiencies.

Sales
(in millions of dollars)
 Three Months Ended March 31
 2020% Change2019
Sales by Product
Accident, Sickness, and Disability$64.6  (10.5)%$72.2  
Life20.7  5.1  19.7  
Cancer and Critical Illness14.0  (17.2) 16.9  
Total Sales$99.3  (8.7) $108.8  
Sales by Market Sector
Commercial
Core Market (< 1,000 employees)$67.6  (5.3)%$71.4  
Large Case Market11.9  (16.8) 14.3  
Subtotal79.5  (7.2) 85.7  
Public Sector19.8  (14.3) 23.1  
Total Sales$99.3  (8.7) $108.8  
(in millions of dollars)           
 Three Months Ended June 30 Six Months Ended June 30
 2019 % Change 2018 2019 % Change 2018
Sales by Product           
Accident, Sickness, and Disability$81.2
 (2.9)% $83.6
 $153.4
 2.3 % $150.0
Life26.0
 (5.8) 27.6
 45.7
 (6.5) 48.9
Cancer and Critical Illness19.7
 (7.1) 21.2
 36.6
 (1.6) 37.2
Total Sales$126.9

(4.2)
$132.4
 $235.7
 (0.2) $236.1
            
Sales by Market Sector           
Commercial           
Core Market (< 1,000 employees)$81.4
 (5.2)% $85.9
 $152.8
 (0.7)% $153.8
Large Case Market20.0
 (1.0) 20.2
 34.3
 (4.5) 35.9
Subtotal101.4
 (4.4) 106.1
 187.1
 (1.4) 189.7
Public Sector25.5
 (3.0) 26.3
 48.6
 4.7
 46.4
Total Sales$126.9
 (4.2) $132.4
 $235.7
 (0.2) $236.1

Commercial market sales decreased inwere lower during the secondfirst quarter and first six months of 2019 as compared2020 relative to the same periodsperiod of 2018,2019 due to lowera decline in new and existing customer account sales to new customers in both the core market, which we define as accounts with fewer than 1,000 employees, and the large case market. The decline in our public sector market partially offsetduring the first quarter of 2020 was driven by higher sales to existing customersa decrease in new customer account sales. The number of new accounts and the average new case size decreased 10.6 percent and 9.2 percent, respectively, in the core and large case markets. Also impacting the comparison for the first six monthsquarter of 20192020 compared to the same period of 2018 were higher dental and vision sales. Public sector market sales were lower in the second quarter of 2019 due primarily to a decline in sales to new and existing customers but were higher during the first six months of 2019 compared to the same period of 2018 due to higher sales to new customers, particularly in the first quarter of 2019. The number of new accounts decreased 9.4 percent and 3.6 percent, respectively, in the second quarter and first six months of 2019 relative to the same periods of 2018. The average new case size decreased 6.6 percent and 6.2 percent, respectively, in the second quarter and first six months of 2019 relative to the same periods of 2018.






Segment Outlook

We remain committed to providing employees and their families with simple, modern, and personal benefit solutions. WeDuring 2020, we will continue to focus on expanding our distribution system through the growth and development of our agency sales force and establishinggrowth of effective broker partnerships.We will also continue to invest in new solutions and digital capabilities to support growth, enhance the customer experience, for our business partners and further improve productivity. We will seek to capitalize on the expansion of our new dental products, which we believe will create opportunities for new cases while also allowing for further cross-selling opportunities to existing clients. We will continue to focus on accelerating growth through territory expansion, territory growth, persistency investments, and increased participation rates. We believe our distribution system, customer service capabilities, the expansion of our new dental products,digital and virtual tools, and ability to serve all market sizes position us well for future growth. growth in the long-term.

WeGiven the uncertainty caused by the COVID-19 pandemic, we expect to see growthexperience further disruption in our sales activity, persistency and ultimately premium and adjusted operating earningsincome in 2019. We also anticipate a decline in the operating expense ratio as we continue to balance operating efficiencies with the continued investments in future growth. 2020.The lower interest rate environment will continue to have an unfavorable impact on our profit margins, and volatility in miscellaneous investment income is likely to continue.  We expect our annual benefit ratio for 2019 to be generally consistent with the level of 2018. While we believe our underlying profitability will remain strong, current economic conditions and increasing competition in the voluntary workplace market are seen as external risks to achievement of our business plans. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly.



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Closed Block Segment

The Closed Block segment consists of individual disability, group and individual long-term care, individual disability, and other insurance products no longer actively marketed. We discontinued offering individual long-term care in 2009 and group long-term care in 2012. Individual disability in this segment generally consists of policies we sold prior to the mid-1990s and entirely discontinued selling in 2004. We discontinued offering individual long-term care in 2009 and group long-term care in 2012. Other insurance products include group pension, individual life and corporate-owned life insurance, reinsurance pools and management operations, and other miscellaneous product lines.

Operating Results

Shown below are financial results and key performance indicators for the Closed Block segment.
(in millions of dollars, except ratios)           (in millions of dollars, except ratios)  
Three Months Ended June 30 Six Months Ended June 30 Three Months Ended March 31
2019 % Change 2018 2019 % Change 2018 2020% Change2019
Adjusted Operating Revenue           Adjusted Operating Revenue
Premium Income           Premium Income
Long-term CareLong-term Care$164.8  1.1 %$163.0  
Individual Disability$94.4
 (11.7)% $106.9
 $192.5
 (11.0)% $216.3
Individual Disability77.0  (21.5) 98.1  
Long-term Care162.6
 0.7
 161.5
 325.6
 0.9
 322.8
All Other2.1
 5.0
 2.0
 4.5
 (2.2) 4.6
All Other2.6  8.3  2.4  
Total Premium Income259.1
 (4.2) 270.4
 522.6
 (3.9) 543.7
Total Premium Income244.4  (7.2) 263.5  
Net Investment Income354.5
 2.6
 345.6
 701.1
 2.6
 683.3
Net Investment Income336.1  (3.0) 346.6  
Other Income16.5
 (12.7) 18.9
 34.5
 (9.0) 37.9
Other Income18.2  1.1  18.0  
Total630.1
 (0.8) 634.9
 1,258.2
 (0.5) 1,264.9
Total598.7  (4.7) 628.1  
           
Benefits and Expenses           Benefits and Expenses
Benefits and Change in Reserves for Future Benefits538.5
 (1.5) 546.6
 1,077.9
 (0.9) 1,087.6
Benefits and Change in Reserves for Future Benefits513.6  (4.8) 539.4  
Commissions20.2
 (4.3) 21.1
 40.8
 (3.8) 42.4
Commissions19.6  (4.9) 20.6  
Interest and Debt Expense1.4
 (17.6) 1.7
 3.0
 (11.8) 3.4
Interest and Debt Expense0.8  (50.0) 1.6  
Other Expenses36.3
 1.1
 35.9
 71.8
 (1.6) 73.0
Other Expenses35.0  (1.4) 35.5  
Total596.4
 (1.5) 605.3
 1,193.5
 (1.1) 1,206.4
Total569.0  (4.7) 597.1  
           
Adjusted Operating Income$33.7
 13.9
 $29.6
 $64.7
 10.6
 $58.5
Adjusted Operating Income$29.7  (4.2) $31.0  
           
Interest Adjusted Loss Ratios:           Interest Adjusted Loss Ratios:
Long-term CareLong-term Care81.0 %88.5 %
Individual Disability81.3%   82.9% 80.7%   80.0%Individual Disability84.5 %80.1 %
Long-term Care87.4%   96.9% 88.0%   96.7%
           
Operating Ratios (% of Premium Income):           Operating Ratios (% of Premium Income):
Other Expense Ratio14.0%   13.3% 13.7%   13.4%Other Expense Ratio14.3 %13.5 %
Adjusted Operating Income Ratio13.0%   10.9% 12.4%   10.8%Adjusted Operating Income Ratio12.2 %11.8 %
           
Persistency:           Persistency:
Long-term CareLong-term Care95.6 %95.6 %
Individual Disability    

 88.3%   88.8%Individual Disability88.9 %88.1 %
Long-term Care    

 95.6%   95.6%

Premium income for individual disability decreased in the second quarter and first six months of 2019 compared to the same periods of 2018 due to policy terminations and maturities. Premium income for long-term care in the second quarter and first six months of 2019 was slightly higher thanin the first quarter of 2020 relative to the same prior year periods,period of 2019, with rate increases mostly offset by policy terminations. We continue to file requests with various state insurance departments for premium rate increases on certain of our individual and group long-term care policies which reflect assumptions as of the date of filings.  In states for which a rate increase is submitted and approved, we routinely provide customers options for coverage changes or other approaches that might fit their current financial and insurance needs. Premium income for individual disability decreased in the first quarter of 2020 compared to the same period of 2019 due to a one-time reinsurance cost related to a small block of policies and continued policy terminations and maturities.


81


Net investment income was higher inlower during the secondfirst quarter and first six months of 20192020 relative to the same periodsperiod of 20182019 due to a decrease in yield on invested assets driven primarily by losses on certain of our perpetual preferred securities, partially offset by an increase in the level of invested assets partially offset by lowerand higher miscellaneous investment income. Also offsetting the increase in net investment income during the second quarter of 2019 was a decline in yield on invested assets.  Other income, which includes the underlying results and associated net investment income of certain blocks of individual disability reinsured business, continues to decline due to expected terminations and maturities.

Individual disability benefits experience was favorable ingenerally consistent during the secondfirst quarter of 2019 compared2020 relative to the same period of 2018 primarily due to a reduction in2019.

The interest adjusted loss ratio for long-term care was favorable during the claim reserve discount rate to recognize the impact on future portfolio yields resulting from an increased level of miscellaneous investment income in the secondfirst quarter of 2018, partially offset2020 relative to the same period of 2019 driven by higher claims incidence inmortality. The interest adjusted loss ratio for long-term care for the second quarter of 2019. During the first sixrolling twelve months of 2019, individualwas 86.2 percent. Individual disability benefits experience was unfavorable relative to 2019 driven primarily by the same prior year period due primarily to higher average claims size. Long-term care benefits experience inimpact of the second quarter and first six months of 2019 was not comparable to the same periods of 2018 due to theone-time reinsurance cost as previously discussed update in our assumptions during the third quarter of 2018, but was consistent with our expectations. The interest adjusted loss ratio for the period subsequent to the update in our assumptions was 86.7 percent.discussed.

The other expense ratio during the first quarter of 2020 was higher in the second quarter and first six months of 2019 compared to the same periodsperiod of 20182019 due to the expecteda decline in premium income for individual disability, partially offset by our continued focus on expense management and operating efficiencies.

Segment Outlook

We will continue to execute on our well-defined strategy of implementing long-term care premium rate increases, efficient capital management, improved financial analysis, and operational effectiveness. We will continue to explore structural options to enhance financial flexibility. Despite continued anticipated premium rate increases in our long-term care business, we expect overall premium income and adjusted operating revenue to decline over time as these closed blocks of business wind down. We will likely experience volatility in net investment income due to fluctuations of miscellaneous investment income and the increased allocation towards alternative assets, primarily private equity partnership investments, in the long-term care product line portfolio. We record changes in our share of net asset value of the partnerships in net investment income. We receive financial information related to our investments in partnerships generally on a one-quarter lag in accordance with our accounting policy. We estimate that we will recognize losses totaling approximately $30 million to $50 million, or approximately 5 to 8 percent of the carrying value of our portfolio, in the second quarter of 2020 as we receive financial statements from the partnerships for the first quarter of 2020 that will reflect the impact of current economic conditions. During the first quarter of 2020, U.S. equity markets were severely depressed as a result of COVID-19 and although our partnership investments are not directly correlated with those markets, their results were negatively impacted as a result of lower asset fair values. As these net asset values are volatile and can move materially with swings in economic conditions within the market, there will likely be significant movements up or down in future periods as conditions change. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly.

Profitability of our long-tailed products is affected by claims experience related to mortality and morbidity, resolutions, investment returns, premium rate increases, and persistency.  We believe that the interest adjusted loss ratios for long-term care and the individual disability and long-term care lines of business will be relatively flat over the long term, but these product lines may continue to experience quarterly volatility, particularly in the near term for our long-term care product lines as our claim block matures and as we continue the implementation of premium rate increases. Specific to our long-term care line of business, which is in loss recognition and should report levels of benefits plus operating expenses that equal the gross premium reported, we expect the long term interest adjusted loss ratio to be in the 85 to 90 percent range with some quarterly volatility. Claim resolution rates, which measure the resolution of claims from recovery, deaths, settlements, and benefit expirations, are very sensitive to operational and external factors and can be volatile. Our claim resolution rate assumption used in determining reserves is our expectation of the resolution rate we will experience over the life of the block of business and will vary from actual experience in any one period. It is possible that variability in any of our reserve assumptions, including, but not limited to, interest rates, mortality, morbidity, resolutions, premium rate increases, benefit change elections, and persistency, could result in a material impact on the adequacy of our reserves, including adjustments to reserves established under loss recognition.




In consideration of the recent COVID-19 pandemic and related recessionary impacts, we expect our Closed Block segment could temporarily experience greater than normal volatility across multiple risk factors. Specific to our long-term care line of business, we expect that we may experience an increase in mortality as well as a decrease in persistency and interest rates. For our individual disability line of business, we expect that we may experience an increase in mortality and incidence as well as a decrease in persistency and claim resolutions.

82


Corporate Segment

The Corporate segment includes investment income on corporate assets not specifically allocated to a line of business, interest expense on corporate debt other than non-recourse debt, and certain other corporate income and expenses not allocated to a line of business.
Operating Results
(in millions of dollars)           
 Three Months Ended June 30 Six Months Ended June 30
 2019 % Change 2018 2019 % Change 2018
Adjusted Operating Revenue           
Net Investment Income$4.3
 (53.3)% $9.2
 $8.6
 (41.5)% $14.7
Other Income1.7
 N.M.
 0.3
 1.7
 13.3
 1.5
Total6.0
 (36.8) 9.5
 10.3
 (36.4) 16.2
            
Interest and Other Expenses49.8
 10.7
 45.0
 99.5
 8.2
 92.0
            
Adjusted Operating Loss$(43.8) (23.4) $(35.5) $(89.2) (17.7) $(75.8)
            
N.M. = not a meaningful percentage           

NetAdjusted operating loss was $45.9 million in the first quarter of 2020 compared to $45.4 million in the first quarter of 2019. Adjusted operating revenue, which consisted entirely of net investment income, was lower$5.1 million in the secondfirst quarter andof 2020, an increase of 18.6 percent from $4.3 million in the first six monthsquarter of 2019, relative to the same periods of 2018 due todriven by a lowerhigher level of invested assets, partially offset by a decrease inlower yield on invested assets, and lower miscellaneous investment income.

assets. Interest and other expenses were higherwas $51.0 million, an increase of 2.6 percent from $49.7 million in the secondfirst quarter and first six months of 2019, relative to the same periods of 2018 due to higher pension costs anddriven by a higher level of outstanding debt.debt, mostly offset by lower pension costs.

Segment Outlook

We expect to continue to generate excess capital on an annual basis through the statutory earnings in our insurance subsidiaries aided in part by the reduction in the corporate tax rate resulting from tax reform. Weand believe we are well positioned with flexibility to preserve our capital strength while also continuing to returnreturning capital to our shareholders.



83


Investments

Overview

Investment activities are an integral part of our business, and profitability is significantly affected by investment results. We segment our invested assets into portfolios that support our various product lines. Generally, our investment strategy for our portfolios is to match the effective asset cash flows and durations with related expected liability cash flows and durations to consistently meet the liability funding requirements of our businesses. We seek to earn investment income while assuming credit risk in a prudent and selective manner, subject to constraints of quality, liquidity, diversification, and regulatory considerations. Our overall investment philosophy is to invest in a portfolio of high quality assets that provide investment returns consistent with that assumed in the pricing of our insurance products. Assets are invested predominately in fixed maturity securities. Changes in interest rates may affect the amount and timing of cash flows.

We actively manage our asset and liability cash flow match and our asset and liability duration match to limitmanage interest rate risk. We may redistribute investments among our different lines of business, when necessary, to adjust the cash flow and/or duration of the asset portfolios to better match the cash flow and duration of the liability portfolios. Asset and liability portfolio modeling is updated on a quarterly basis and is used as part of the overall interest rate risk management strategy. Cash flows from the in-force asset and liability portfolios are projected at current interest rate levels and also at levels reflecting an increase and a decrease in interest rates to obtain a range of projected cash flows under the different interest rate scenarios. These results enable us to assess the impact of projected changes in cash flows and duration resulting from potential changes in interest rates. Testing the asset and liability portfolios under various interest rate scenarios enables us to choose what we believe to be the most appropriate investment strategy, as well as to limit the risk of disadvantageous outcomes. Although we test the asset and liability portfolios under various interest rate scenarios as part of our modeling, the majority of our liabilities related to insurance contracts are not interest rate sensitive, and we therefore have minimal exposure to policy withdrawal risk. Our determination of investment strategy relies on long-term measures such as reserve adequacy analysis and the relationship between the portfolio yields supporting our various product lines and the aggregate discount rate assumptions embedded in the reserves. We also use this analysis in determining hedging strategies and utilizing derivative financial instruments for managing interest rate risk and the risk related to matching duration for our assets and liabilities. We do not use derivative financial instruments for speculative purposes.

Our investment portfolio is well diversified by type of investment and industry sector. We have established an investment strategy that we believe will provide for adequate cash flows from operations and allow us to hold our securities through periods where significant decreases in fair value occur. We believe our emphasis on risk management in our investment portfolio including credit and interest rate management, has positioned us well and generally reduced the volatility in our results.


COVID-19

The current economic conditions have increased volatility in the capital markets and have caused significant pressure on the profitability of many companies. The sharp decline in oil prices and lack of demand due to COVID-19, which began to occur in the first quarter of 2020, is also causing pressure on the profitability of companies in the energy sector. We have recorded credit losses during the first quarter of 2020 primarily related to fixed maturity securities issued by companies in the energy sector and continue to monitor capital market activity on a regular basis. Our fixed income exposure to consumer cyclicals, which have been stressed due to COVID-19 related shutdowns, is approximately 3 percent of our portfolio. Within this sector, we have no exposure to lodging and our exposure to other stressed industries such as airlines and restaurants is minimal at less than 0.2 percent of our portfolio each. In the first quarter of 2020, we had approximately $336 million of downgrades of investment-grade securities to high yield or below investment grade, which contributed to the increase in our holdings of below-investment-grade securities from 7.5 percent of fixed maturity securities at December 31, 2019 to 8.2 percent at March 31, 2020 on an amortized cost basis. On a fair value basis, the percentage of our below-investment grade securities was 6.6 percent at March 31, 2020 compared to 6.7 percent at December 31, 2019.

To the extent that there is continued volatility and ratings downgrades related to the issuers of our fixed maturity securities, we could experience further credit losses, an increase in defaults, and the need for additional capital in our insurance subsidiaries. However, we remain confident in the overall strength and credit quality of our investment portfolio. Net investment income may decline as a result of the current economic conditions, which have sustained the low interest rate environment that will continue to impact the yield on our invested assets, particularly related to the investment of new cash flows. For further discussion, see "Fixed Maturity Securities" contained herein in this Item 2.

84


Potential declines in the net asset values of our partnership investments expected to be recognized in the second quarter of 2020 as we receive financial statements from the partnerships for the first quarter of 2020 will decrease net investment income. We are also working with certain of our commercial mortgage loan borrowers that have requested temporary payment deferrals. For further discussion, see "Mortgage Loans" and "Private Equity Partnerships" contained herein in this Item 2.

See "Executive Summary" for further information on the impact from COVID-19 contained herein in Item 2.

Fixed Maturity Securities

The fair values and associated unrealized gains and losses of our fixed maturity securities portfolio, by industry classification, are as follows:

Fixed Maturity Securities - By Industry Classification
As of March 31, 2020
June 30, 2019

(in millions of dollars)      
ClassificationFair ValueNet Unrealized Gain (Loss)Fair Value of Fixed Maturity Securities with Gross Unrealized LossGross Unrealized LossFair Value of Fixed Maturity Securities with Gross Unrealized GainGross Unrealized Gain
Basic Industry$3,115.2  $148.8  $1,084.0  $88.8  $2,031.2  $237.6  
Capital Goods4,240.0  380.5  777.1  47.4  3,462.9  427.9  
Communications2,956.7  418.8  344.6  37.8  2,612.1  456.6  
Consumer Cyclical1,417.0  79.5  438.6  50.4  978.4  129.9  
Consumer Non-Cyclical7,142.0  823.9  933.1  84.7  6,208.9  908.6  
Energy3,734.8  (349.7) 1,911.2  562.2  1,823.6  212.5  
Financial Institutions3,592.5  240.9  877.6  56.4  2,714.9  297.3  
Mortgage/Asset-Backed1,445.7  129.0  43.8  0.9  1,401.9  129.9  
Sovereigns958.3  172.0  4.1  2.2  954.2  174.2  
Technology1,812.5  66.3  490.2  42.4  1,322.3  108.7  
Transportation2,295.8  216.5  523.4  41.8  1,772.4  258.3  
U.S. Government Agencies and Municipalities5,030.1  745.5  299.6  9.8  4,730.5  755.3  
Public Utilities7,550.9  1,189.2  708.1  42.4  6,842.8  1,231.6  
Total$45,291.5  $4,261.2  $8,435.4  $1,067.2  $36,856.1  $5,328.4  
85


(in millions of dollars)            
Classification Fair Value Net Unrealized Gain Fair Value of Fixed Maturity Securities with Gross Unrealized Loss Gross Unrealized Loss Fair Value of Fixed Maturity Securities with Gross Unrealized Gain Gross Unrealized Gain
Basic Industry $3,156.4
 $272.5
 $263.9
 $14.0
 $2,892.5
 $286.5
Capital Goods 4,460.7
 501.6
 299.9
 9.1
 4,160.8
 510.7
Communications 3,039.7
 438.1
 157.1
 9.6
 2,882.6
 447.7
Consumer Cyclical 1,541.3
 154.3
 44.4
 2.6
 1,496.9
 156.9
Consumer Non-Cyclical 7,084.5
 762.5
 708.1
 49.3
 6,376.4
 811.8
Energy 4,788.9
 626.2
 296.0
 31.5
 4,492.9
 657.7
Financial Institutions 3,455.7
 348.1
 29.7
 1.3
 3,426.0
 349.4
Mortgage/Asset-Backed 1,566.4
 104.6
 70.6
 0.5
 1,495.8
 105.1
Sovereigns 1,004.7
 197.9
 22.3
 1.6
 982.4
 199.5
Technology 1,882.4
 112.7
 193.9
 8.8
 1,688.5
 121.5
Transportation 2,251.6
 280.2
 97.1
 1.6
 2,154.5
 281.8
U.S. Government Agencies and Municipalities 4,594.2
 637.4
 8.1
 0.3
 4,586.1
 637.7
Public Utilities 7,613.7
 1,199.3
 197.3
 18.2
 7,416.4
 1,217.5
Total $46,440.2
 $5,635.4
 $2,388.4
 $148.4
 $44,051.8
 $5,783.8


The following two tables show the length of time our investment-grade and below-investment-grade fixed maturity securities portfolios had been in a gross unrealized loss position as of June 30, 2019March 31, 2020 and at the end of the prior four quarters. The relationships of the current fair value to amortized cost are not necessarily indicative of the fair value to amortized cost relationships for the securities throughout the entire time that the securities have been in an unrealized loss position nor are they necessarily indicative of the relationshipsrelationships after June 30, 2019.March 31, 2020. The decreaseincrease in the unrealized loss on fixed maturity securities during the secondfirst quarter of 20192020 was due primarily to afrom the significant widening of credit spreads offset somewhat by the decrease in the U.S. treasury rates.Treasury rates that occurred due to COVID-19.

Unrealized Loss on Investment-Grade Fixed Maturity Securities
Length of Time in Unrealized Loss Position

(in millions of dollars)
 20202019
 March 31December 31September 30June 30March 31
Fair Value < 100% >= 70% of Amortized Cost
<= 90 days$499.4  $13.8  $4.3  $3.8  $3.0  
> 90 <= 180 days0.1  2.0  1.9  —  3.4  
> 180 <= 270 days—  —  —  0.6  7.4  
> 270 days <= 1 year0.3  —  3.1  2.4  24.0  
> 1 year <= 2 years1.8  3.8  6.6  30.6  97.0  
> 2 years <= 3 years3.2  2.8  1.5  8.2  27.1  
> 3 years—  0.8  —  0.2  0.7  
Sub-total504.8  23.2  17.4  45.8  162.6  
Fair Value < 70% >= 40% of Amortized Cost
<= 90 days145.2  —  —  —  —  
> 90 <= 180 days—  0.3  —  —  1.6  
> 180 <= 270 days0.2  —  —  1.6  —  
> 270 days <= 1 year—  —  0.3  —  —  
> 1 year <= 2 years—  —  —  11.1  11.1  
Sub-total145.4  0.3  0.3  12.7  12.7  
Total$650.2  $23.5  $17.7  $58.5  $175.3  














86

(in millions of dollars)         
 2019   2018  
 June 30 March 31 December 31 September 30 June 30
Fair Value < 100% >= 70% of Amortized Cost      
          
<= 90 days$3.8
 $3.0
 $52.1
 $25.9
 $56.0
> 90 <= 180 days
 3.4
 36.0
 61.7
 149.1
> 180 <= 270 days0.6
 7.4
 90.2
 158.2
 40.3
> 270 days <= 1 year2.4
 24.0
 200.0
 43.9
 38.8
> 1 year <= 2 years30.6
 97.0
 94.5
 95.7
 51.3
> 2 years <= 3 years8.2
 27.1
 50.5
 9.7
 2.0
> 3 years0.2
 0.7
 1.7
 1.9
 1.2
Sub-total45.8
 162.6
 525.0
 397.0
 338.7
          
Fair Value < 70% >= 40% of Amortized Cost      
          
<= 90 days
 
 1.6
 
 
> 90 <= 180 days
 1.6
 
 
 
> 180 <= 270 days1.6
 
 
 
 13.9
> 270 days <= 1 year
 
 
 14.2
 
> 1 year <= 2 years11.1
 11.1
 2.9
 
 
Sub-total12.7
 12.7
 4.5
 14.2
 13.9
 

 

 

 

 

Total$58.5
 $175.3
 $529.5
 $411.2
 $352.6




Unrealized Loss on Below-Investment-Grade Fixed Maturity Securities
Length of Time in Unrealized Loss Position

(in millions of dollars)
 20202019
 March 31December 31September 30June 30March 31
Fair Value < 100% >= 70% of Amortized Cost
<= 90 days$167.0  $0.5  $5.1  $6.1  $1.0  
> 90 <= 180 days0.7  3.1  10.3  1.3  2.1  
> 180 <= 270 days0.8  5.1  1.5  1.4  3.8  
> 270 days <= 1 year4.4  0.9  0.9  6.3  1.3  
> 1 year <= 2 years0.8  17.5  31.0  26.3  29.1  
> 2 years <= 3 years12.1  1.3  0.3  —  10.6  
> 3 years11.5  13.7  5.2  22.6  28.8  
Sub-total197.3  42.1  54.3  64.0  76.7  
Fair Value < 70% >= 40% of Amortized Cost
<= 90 days114.6  —  —  —  —  
> 90 <= 180 days2.7  —  12.0  —  —  
> 180 <= 270 days12.8  15.1  —  —  —  
> 270 days <= 1 year12.5  —  —  —  —  
> 1 year <= 2 years5.7  —  —  —  —  
> 2 years <= 3 years1.2  —  12.7  11.7  —  
> 3 years10.6  10.5  21.6  14.2  7.2  
Sub-total160.1  25.6  46.3  25.9  7.2  
Fair Value < 40% of Amortized Cost
<= 90 days9.6  —  —  —  —  
> 270 days <= 1 year15.7  —  —  —  —  
> 1 year <= 2 years8.5  —  —  —  —  
> 2 years <= 3 years9.0  —  —  —  —  
> 3 years16.8  —  —  —  12.6  
Sub-total59.6  —  —  —  12.6  
Total$417.0  $67.7  $100.6  $89.9  $96.5  












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(in millions of dollars)         
 2019   2018  
 June 30 March 31 December 31 September 30 June 30
Fair Value < 100% >= 70% of Amortized Cost      
          
<= 90 days$6.1
 $1.0
 $39.7
 $2.3
 $6.4
> 90 <= 180 days1.3
 2.1
 19.0
 6.9
 29.3
> 180 <= 270 days1.4
 3.8
 11.1
 19.5
 14.8
> 270 days <= 1 year6.3
 1.3
 52.8
 11.5
 4.7
> 1 year <= 2 years26.3
 29.1
 27.1
 13.8
 10.3
> 2 years <= 3 years
 10.6
 4.8
 1.9
 9.5
> 3 years22.6
 28.8
 31.6
 24.4
 22.5
Sub-total64.0
 76.7
 186.1
 80.3
 97.5
          
Fair Value < 70% >= 40% of Amortized Cost      
          
> 1 year <= 2 years
 
 0.7
 
 
> 2 years <= 3 years11.7
 
 11.3
 
 5.0
> 3 years14.2
 7.2
 17.8
 5.1
 
Sub-total25.9
 7.2
 29.8
 5.1
 5.0
          
Fair Value <= 40% of Amortized Cost        
          
> 3 years
 12.6
 11.0
 
 
Sub-total
 12.6
 11.0
 
 
          
Total$89.9
 $96.5
 $226.9
 $85.4
 $102.5

At June 30, 2019, we held two below-investment-gradeThe following table shows our fixed maturity securities with a gross unrealized loss of $10.0 million or greater, by industry type.

Gross Unrealized Losses $10 Million or Greater on Fixed Maturity Securities
As of March 31, 2020
(in millions of dollars)
ClassificationFair ValueGross Unrealized LossNumber of Issuers
Investment-Grade
Energy$643.1  $233.0  12  
Consumer Cyclical73.3  11.3   
Total$716.4  $244.3  13  
Below-Investment-Grade
Energy$196.7  $169.6   
Consumer Non-Cyclical61.0  16.1   
Technology5.6  14.4   
Total$263.3  $200.1  10  

At March 31, 2020, we held three investment grade fixed maturity securities each with a gross unrealized loss greater than $10.0$20.0 million. One security isThese securities are related to a global pharmaceutical companyoil and natural gas producers and had a fair value of $60.3$145.3 million and a gross unrealized loss of $16.7$106.1 million. The other security isWe also held three below-investment grade fixed maturity securities each with a gross unrealized loss greater than $20.0 million at March 31, 2020 related to a U.S. based oil and natural gas producer and hadproducers with a fair value of $13.7$126.3 million and a gross unrealized loss of $10.7$107.5 million. We intend to and have the ability and intend to continue to hold these securities to maturityrecovery of amortized cost and believe that the declines in fair value are temporary.no credit losses have occurred.

During the secondfirst quarter of 2019,2020, we recognized a realized loss of $15.6the following credit losses greater than $10 million:

$20.8 million on the sale offixed maturity securities of a U.S. basedissued by an oil and natural gas producer. The profitability of the company has been impacted by the significant decline in energyoil prices. Given the current environment, near term debt maturities may be difficult to refinance.
$17.1 million on fixed maturity securities issued by an oil and gas producer. The profitability of the company has been impacted by the decline in oil prices and the company has a high level of debt,debt. The company filed for bankruptcy as expected in early April 2020.
$10.2 million on fixed maturity securities issued by a paper company whose sales of lumber and an inability to complete certain asset sales. Atother products have been impacted by the time of disposition, these securities had beenslowdown in an unrealized loss position for a period of greater than three years.the economy.

We had no individual realized investment losses of $10.0 million or greater from impairments during the first quarter of 2019 and no individual realized investment losses of $10.0 million or greater from the sale of fixed maturity securities during the secondfirst quarter of 2020 or first six months of 2018. We had no individual realized investment losses of $10.0 million or greater from other-than-temporary impairments during the second quarters or first six months of 2019 or 2018.2019.

At June 30, 2019,March 31, 2020, our mortgage/asset-backed securities had an average life of 5.606.03 years, effective duration of 4.703.5 years, and a weighted average credit rating of Aaa.AAA. The mortgage/asset-backed securities are valued on a monthly basis using valuations supplied by the brokerage firms that are dealers in these securities as well as independent pricing services. One of the risks involved in investing in mortgage/asset-backed securities is the uncertainty of the timing of cash flows from the underlying loans due to prepayment of principal with the possibility of reinvesting the funds in a lower interest rate environment. We use models which incorporate economic variables and possible future interest rate scenarios to predict future prepayment rates. The timing of prepayment cash flows may also cause volatility in our recognition of investment income. We recognize investment income


on these securities using a constant effective yield based on projected prepayments of the underlying loans and the estimated economic life of the securities.  Actual prepayment experience is reviewed periodically, and effective yields are recalculated when differences arise between prepayments originally projected and the actual prepayments received and currently projected. The effective yield is recalculated on a retrospective basis, and the adjustment is reflected in net investment income.

We have no exposure to subprime mortgages, "Alt-A" loans, or collateralized debt obligations in our investment portfolios. We have not invested in mortgage-backed derivatives, such as interest-only, principal-only, or residuals, where market values can be highly volatile relative to changes in interest rates. The credit quality of our mortgage-backed securities portfolio has not been negatively impacted by the issues in the market concerning subprime mortgage loans. The change in value of our mortgage-backed securities portfolio has moved in line with that of prime agency-backed mortgage-backed securities.
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As of June 30, 2019,March 31, 2020, the amortized cost and fair value of our below-investment-grade fixed maturity securities was $3,178.1$3,350.9 million and $3,207.4$2,988.4 million, respectively. Below-investment-grade securities are inherently riskier than investment-grade securities since the risk of default by the issuer, by definition and as exhibited by bond rating, is higher. Also, the secondary market for certain below-investment-grade issues can be highly illiquid. Additional downgrades may occur, but we do not anticipate any liquidity problems resulting from our investments in below-investment-grade securities, nor do we expect these investments to adversely affect our ability to hold our other investments to maturity.

Fixed Maturity Securities - Energy Sector

Our investment portfolio has exposure to companies whose businesses are negatively impacted by lower oil and natural gas prices. These include exploration and production companies, refineries, midstream pipeline companies, and oilfield service businesses. The sharp decline in energy prices and lack of demand due to COVID-19, which began to occur in the first quarter of 2020, put pressure on the earnings and cash flows of these businesses. The degree to which a business is affected by energy prices can vary greatly depending on, among other things, its energy subsector, geographic locations, cost structure flexibility, capital structure, and hedging policies.

At March 31, 2020, approximately one-half of our exposure to the energy sector was represented by the midstream (pipeline) subsector which tends to be more correlated to product volume sales than to commodity prices. Approximately twenty-four percent of our exposure is in the oil and gas independent exploration and production subsector where demand for products is highly correlated with oil and gas prices. Approximately eighteen percent of our exposure is in the integrated subsector which is comprised of large highly rated companies. The majority of our energy sector holdings are investment-grade fixed maturity securities. During the first quarter of 2020, in addition to the credit losses related to energy sector securities as previously discussed that totaled $37.9 million, we also recognized credit losses totaling $3.6 million. We also recorded losses totaling approximately $17 million in net investment income for the first quarter of 2020 due primarily to the decrease in the fair value of two perpetual preferred securities in the energy sector.

At March 31, 2020, the fair value of investment-grade fixed maturity securities in the energy sector was $3,392.1 million, with a gross unrealized gain of $212.5 million and a gross unrealized loss of $331.5 million. The fair value of below-investment-grade fixed maturity securities in the energy sector was $342.7 million, with a gross unrealized loss of $230.7 million. The following table shows additional information related to our holdings in the energy sector.

Fixed Maturity Securities - Energy Sector
As of March 31, 2020
(in millions of dollars)      
ClassificationFair ValueNet Unrealized Gain (Loss)Fair Value of Fixed Maturity Securities with Gross Unrealized LossGross Unrealized LossFair Value of Fixed Maturity Securities with Gross Unrealized GainGross Unrealized Gain
Midstream$1,838.5  $(148.4) $1,021.5  $217.7  $817.0  $69.3  
Oil and Gas-Independent877.6  (267.6) 582.7  307.0  294.9  39.4  
Oil Field68.1  (14.0) 67.1  14.0  1.0  —  
Oil-Integrated690.1  86.4  73.6  13.0  616.5  99.4  
Oil-Refining225.3  (6.3) 156.4  10.4  68.9  4.1  
Other Energy35.2  0.2  9.9  0.1  25.3  0.3  
Total$3,734.8  $(349.7) $1,911.2  $562.2  $1,823.6  $212.5  

Fixed Maturity Securities - Foreign Exposure

Our investments in issuers in foreign countries are chosen for specific portfolio management purposes, including asset and liability management and portfolio diversification across geographic lines and sectors to minimize non-market risks. In our approach to investing in fixed maturity securities, specific investments within approved countries and industry sectors are evaluated for their market position and specific strengths and potential weaknesses.  For each security, we consider the political, legal, and financial environment of the sovereign entity in which an issuer is domiciled and operates. The country of domicile is based on consideration of the issuer's headquarters, in addition to location of the assets and the country in which the majority
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of sales and earnings are derived.  We do not have exposure to foreign currency risk, as the cash flows from these investments are either denominated in currencies or hedged into currencies to match the related liabilities. We continually evaluate our foreign investment risk exposure.

Mortgage Loans

OurThe carrying value of our mortgage loan portfolioportfolio was $2,218.9$2,452.1 million and $2,397.0 million at $2,295.0 millionMarch 31, 2020 on anand December 31, 2019, respectively. Our investments in mortgage loans are carried at amortized cost basis atless an allowance for credit losses. June 30, 2019 and December 31, 2018, respectively. Our mortgage loan portfolio is comprised entirely of commercial mortgage loans. We believe ourOur mortgage loan portfolio is well diversified geographically and among property types. TheDue to conservative underwriting, the incidence of problem mortgage loans and foreclosure activity continues to be low. Due to conservative underwriting, we expect the level of problem loans to remain low relative to the industry. We held no impaired mortgage loans at June 30,March 31, 2020 or December 31, 2019. Effective January 1, 2020, we adopted a new accounting standard requiring the estimation of an allowance for expected credit losses which was $11.1 million at March 31, 2020. See Note 2 and 4 in the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further discussion of our mortgage loan portfolio and the allowance for expected credit losses.
Private Equity Partnerships

The carrying value of our investments in private equity partnerships was $638.1 million and $616.7 million at March 31, 2020 and December 31, 2019, respectively. These partnerships are passive in nature and represent funds that are primarily invested in private credit, private equity, and real assets. The carrying value of the partnerships is based on our share of the partnership's net asset value (NAV) and changes in the carrying value are recorded as a component of net investment income. We receive financial information related to our investments in partnerships generally on a one-quarter lag in accordance with our accounting policy. We recorded $10.4 million of net investment income for the partnerships in the first quarter of 2020 reflecting the market conditions of the fourth quarter of 2019. We held one impaired mortgage loan at December 31, 2018 with a net realizableestimate that we will recognize losses totaling approximately $30 million to $50 million, or approximately five to eight percent of the carrying value of $3.4 million, netour portfolio, in the second quarter of a valuation allowance2020 as we receive financial statements from the partnerships for the first quarter of $0.2 million.2020 that will reflect the impact of current economic conditions. During the first quarter of 2019,2020, U.S. equity markets were severely depressed as a result of COVID-19 and although our partnership investments are not directly correlated with those markets, their results were negatively impacted as a result of lower asset fair values. The majority of our investments in partnerships are not redeemable. Distributions received from the impaired mortgage loan was settled,funds arise from income generated by the underlying investments as well as the liquidation of the underlying investments and we recognized anthere is generally not a public market for these investments. We had $524.0 million of commitments for additional lossinvestments in the partnerships at March 31, 2020 which may or may not be funded. See Note 3 in the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further discussion of $0.1 million.

our private equity partnerships.
Derivative Financial Instruments

We use derivative financial instruments primarily to manage reinvestment, duration, foreign currency, and credit risks. Historically, we have utilized current and forward interest rate swaps and options on forward interest rate swaps and U.S. Treasury rates, current and forward currency swaps, forward treasury locks, currency forward contracts, forward contracts on specific fixed income securities, and credit default swaps. Credit exposure on derivatives is limited to the value of those contracts in a net gain position, including accrued interest receivable less collateral held. At June 30, 2019, we had noOur credit exposure on derivatives.derivatives was $1.1 million at March 31, 2020. We held $22.3$59.7 million of net cash collateral from our counterparties at June 30, 2019.March 31, 2020. The carrying value of fixed maturity securities posted as collateral to our counterparties was $30.4$11.7 million at June 30, 2019. We had no cash collateral posted to our counterparties at June 30, 2019.March 31, 2020. We believe that our credit risk is mitigated by our use of multiple counterparties, all of which have an investment-grade credit rating, and by our use of cross-collateralization agreements.
Other

Our exposure to non-current investments, defined as foreclosed real estate and invested assets which are delinquent as to interest and/or principal payments, totaled $35.9$34.8 million and $36.0$30.5 million on a fair value basis at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.


For further information see "Investments" in Part I, Item 1 and "Critical Accounting Estimates" and "Investments" in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2018,2019, and Notes 3, 4, and 5 of the "Notes to Consolidated Financial Statements" contained herein in Item 1.

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Liquidity and Capital Resources

Overview

Our liquidity requirements are met primarily by cash flows provided from operations, principally in our insurance subsidiaries. Premium and investment income, as well as maturities and sales of invested assets, provide the primary sources of cash. Debt and/or securities offerings provide additional sources of liquidity. Cash is applied to the payment of policy benefits, costs of acquiring new business (principally commissions), operating expenses, and taxes, as well as purchases of new investments.

We have established an investment strategy that we believe will provide for adequate cash flows from operations. We attempt to match our asset cash flows and durations with expected liability cash flows and durations to meet the funding requirements of our business. However, deterioration in the credit market may delay our ability to sell our positions in certain of our fixed maturity securities in a timely manner and adversely impact the price we receive for such securities, which may negatively impact our cash flows. Furthermore, if we experience defaults on securities held in the investment portfolios of our insurance subsidiaries, this will negatively impact statutory capital, which could reduce our insurance subsidiaries' capacity to pay dividends to our holding companies. A reduction in dividends to our holding companies could force us to seek external financing to avoid impairing our ability to pay dividends to our stockholders or meet our debt and other payment obligations.

Our policy benefits are primarily in the form of claim payments, and we have minimal exposure to the policy withdrawal risk associated with deposit products such as individual life policies or annuities. A decrease in demand for our insurance products or an increase in the incidence of new claims or the duration of existing claims could negatively impact our cash flows from operations. However, our historical pattern of benefits paid to revenues is generally consistent, even during cycles of economic downturns, which serves to minimize liquidity risk.

The liquidity requirements of the holding company Unum Group include common stock dividends, interest and debt service, acquisitions, and ongoing investments in our businesses.  Unum Group's liquidity requirements are met by assets held by Unum Group and our intermediate holding companies, dividends from primarily our insurance subsidiaries, and issuance of common stock, debt, or other capital securities and borrowings from existing credit facilities, as needed.  As of June 30, 2019,March 31, 2020, Unum Group and our intermediate holding companies held fixed maturity securities, short-term investments, and cash of $977$1,025 million. Fixed maturity securities consisted primarily of mortgage/asset-backed securities with an average maturity date of 4.53.2 years. Short-term investments consisted primarily of commercial paper. No significant restrictions exist on our ability to use or access funds in any of our U.S. or foreign intermediate holding companies. Future amountsDividends repatriated from our foreign subsidiaries are eligible for a 100 percent exemption from U.S. income tax but may be subject to withholding tax and/or tax on foreign currency gain or loss.

As part of our capital deployment strategy, we repurchase shares of Unum Group's common stock, as authorized by our board of directors. Our current share repurchase program was approved by our board of directors in May 2019 and authorizes the repurchase of up to $750 million of common stock through November 2020, with the pace of repurchase activity to depend upon various factors such as the level of available cash, alternative uses for cash, and our stock price. This new authorization replacedWe did not repurchase shares during the previous authorizationfirst three months of $750 million that was scheduled2020 and do not expect to expireresume repurchases through the remainder of our currently authorized repurchase program, which expires in November 2019. During the first six months of 2019, we repurchased 5.6 million shares at a cost of approximately $200 million.2020. The dollar value of shares remaining under the current repurchase program was approximately $716$516 million at June 30, 2019.March 31, 2020. See Note 10 of the "Notes to Consolidated Financial Statements" contained herein in Item 1.

Liquidity and Capital Resource Considerations - COVID-19

We believe we have the appropriate liquidity and access to capital to avoid significant disruption to our operations. We have not yet experienced a significant decline in the collection of premiums and have also not yet experienced a significant increase in submitted claims, however, we continually monitor the developments of these items.

Regarding liquidity, at March 31, 2020, we have borrowed $451.7 million of funds through the membership of certain of our U.S. insurance subsidiaries with regional FHLBs. Similar to our previous advances, these funds are used for the purpose of investing in either short-term investments or fixed maturity securities but may be utilized for liquidity if the need arises. Additionally, we have access to two unsecured revolving credit facilities under separate syndicates of lenders that allow us to borrow up to a total of $600 million. There are currently no outstanding borrowings on these facilities but we remain in compliance with required covenants should we choose to borrow in the future. Furthermore, excluding the upcoming maturity of our $400.0 million aggregate principal amount of 5.625% unsecured notes due in the third quarter of 2020, which we funded through an issuance of debt during the second quarter of 2019, we have no significant upcoming debt maturities until 2024. We
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continue to meet the financial covenants contained in our current debt agreements and credit facilities, and we expect that we will continue to meet those covenants in subsequent periods.

To the extent that we begin to experience a significant decrease in collection of premiums and/or an increase in claim payments, our liquidity would be negatively impacted and would likely result in the sale of highly liquid invested assets or borrowings on our credit facilities to meet operational cash flow requirements.

See "Debt" and "Transfers of Financial Assets" for further discussion of our debt arrangements, credit facilities, and of our FHLB arrangements contained herein in this Item 2. For further discussion of the key considerations regarding the impacts of COVID-19 see "Executive Summary" herein Item 2.

Cash Available from Subsidiaries

Unum Group and certain of its intermediate holding company subsidiaries depend on payments from subsidiaries to pay dividends to stockholders, to pay debt obligations, and/or to pay expenses. These payments by our insurance and non-insurance subsidiaries may take the form of dividends, operating and investment management fees, and/or interest payments on loans from the parent to a subsidiary.

Restrictions under applicable state insurance laws limit the amount of 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 U.S., 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 dividends to a parent company from a life insurance subsidiary is generally further limited to the amount of unassigned funds.

Certain of our domestic insurance subsidiaries cede blocks of business to Northwind Reinsurance Company (Northwind Re) and Fairwind Insurance Company (Fairwind), both of which are affiliated captive reinsurance subsidiaries domiciled in the United States with Unum Group as the ultimate parent. The ability of Northwind Re and Fairwind to pay dividends to their respective parent companies will depend on their satisfaction of applicable regulatory requirements and on the performance of the business reinsured by Northwind Re and Fairwind.

The ability of Unum Group and certain of its intermediate holding company subsidiaries to continue to receive dividends from their insurance subsidiaries also depends on additional factors such as RBC ratios and capital adequacy and/or solvency requirements, funding growth objectives at an affiliate level, and maintaining appropriate capital adequacy ratios to support desired ratings. The RBC ratios for our U.S. insurance subsidiaries at June 30, 2019March 31, 2020 are in line with our expectations and are significantly above the level that would require state regulatory action.

In connection with a financial examination of Unum Life Insurance Company of America (Unum America), which is expected to close at the end of the second quarter of 2020, the Maine Bureau of Insurance (MBOI) has concluded that Unum America’s long-term care statutory reserves are deficient by $2.1 billion as of December 31, 2018, the financial statement date of the examination period. The MBOI granted permission to Unum America on May 1, 2020, to phase in the additional statutory reserves over seven years beginning with year-end 2020 and ending with year-end 2026. The 2020 phase-in amount is estimated to be between $200 million and $250 million. This strengthening will be accomplished by our actuaries incorporating explicitly agreed upon margins into our existing assumptions for annual statutory reserve adequacy testing. These actions will add margin to Unum America's best estimate assumptions. Our long-term care reserves and financial results reported under generally accepted accounting principles are not affected by the MBOI’s examination conclusion. We plan to fund the additional statutory reserves with expected cash flows.

Unum Group and/or certain of its intermediate holding company subsidiaries may also receive dividends from our U.K. subsidiaries, the payment of which may be subject to applicable insurance company regulations and capital guidance in the U.K. Unum Limited is subject to the requirements of Solvency II, a European Union (EU) directive, which prescribes capital requirements and risk management standards for the European insurance industry. Our European holding company is also subject to the Solvency II requirements relevant to insurance holding companies, while its subsidiaries (the Unum European Economic Area (EEA) Group), which includes Unum Limited, are subject to group supervision under Solvency II. The Unum EEA Group received approval from the U.K. Prudential Regulation Authority to use its own internal model for calculating regulatory capital and also received approval for certain associated regulatory permissions including transitional relief as the Solvency II capital regime continues to be implemented. There are currently no indications that capital requirements for the
92


Unum EEA Group will change as a result of the U.K.'s exit from the EU, but economic conditions may in the near term cause volatility in our solvency ratios.

The payment of dividends to the parent company from our subsidiaries also requires the approval of the individual subsidiary's board of directors.

During the remainder of 2019,2020, we intend to maintain a level of capital in our insurance subsidiaries above the applicable capital adequacy requirements and minimum solvency margins.

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.

Funding for Employee Benefit Plans

During the first sixthree months of 2019,2020, we made contributions of $35.2$17.0 million and £1.7£1.0 million to our U.S. and U.K. defined contribution plans, respectively, and expect to make additional contributions of approximately $40$58 million and £1.5£3 million during the remainder of 2019.2020. We made a de minimis amount of contributions to our U.S. qualified defined benefit pension plan and no contribution to our U.K. defined benefit pension plan during the first three months 2020. We do not expect to make any further contributions to our U.S. or U.K. qualified defined benefit pension planseither plan during 2019.2020. We have met all minimum pension funding requirements set forth by the Employee Retirement Income Security Act. We have estimated our future funding requirements under the Pension Protection Act of 2006 and under applicable U.K. law and do not believe that any future funding requirements will cause a material adverse effect on our liquidity.


Debt

Our short-term debt balance at March 31, 2020 consisted entirely of our 5.625% senior unsecured notes due in the third quarter of 2020, with deferred debt costs of $0.2 million included in the carrying amount.

Our long-term debt balance at June 30, 2019March 31, 2020 was $3,341.2$2,914.3 million, net of deferred debt issuance costs of $33.0$34.4 million, and consisted primarily of secured and unsecured senior notes and junior subordinated debt securities.

Northwind Holdings made principal payments on its floating rate, senior secured non-recourse notes of $30.0$15.0 million in the first sixthree months of 2019.

In June 2019, we issued $400.0 million of 4.00% senior notes due 2029. The notes are callable at or above par and rank equally in the right of payment with all of our other unsecured and unsubordinated debt. The net proceeds of the offering are expected to be used for general corporate purposes, including the repayment at maturity of our outstanding 5.625% senior notes due September 2020.

In April 2019, we amended the terms of our existing five-yearWe have access to two separate unsecured revolving credit facility, increasing it from $400.0 million to $500.0 million. Thefacilities, each with a different syndicate of lenders. One of our credit facility, which was previously set to expire in 2021, was extendedfacilities is under a five-year agreement and is effective through April 2024. Under theThe terms of the amendedthis agreement we may request that the credit facilityprovide for a borrowing capacity of $500.0 million with an option to be increased up to $700.0 million, up from the previous amount of $600.0 million. We may also may request, on up to two occasions, that the lenders' commitment termination dates be extended by one year. The credit facility provides for the issuance of letters of credit subject to certain terms and limitations. At June 30, 2019,March 31, 2020, letters of credit totaling $2.0$0.6 million had been issued from thethis credit facility, but there were no borrowed amounts outstanding.


Also in April 2019, we separately entered intoOur other credit facility is under a three-year agreement and is effective until April 2022. The terms of this agreement provide for a borrowing capacity of $100.0 million unsecured revolving credit facility with a different syndicate of lenders, which is setan option to expire in April 2022. Under the terms of the agreement, we may request that the credit facility be increased up to $140.0 million. We may also may request that the lenders' commitment termination dates be extended by one year. The credit facility provides for the issuance of letters of credit subject to certain terms and limitations. At June 30, 2019,March 31, 2020, there have been no letters of credit issued from the credit facility and there were no borrowed amounts outstanding.

There are no significant financial covenants associated with any of our outstanding debt obligations. We continually monitor our compliance with our debt covenants and remain in compliance. Our credit facilities include financial covenants that place limitations on our leverage ratio and consolidated net worth. The credit facilities also include covenants that limit subsidiary indebtedness. We have not observed any current trends that would cause a breach of any of our debt or credit facility covenants. See Note 13 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 and "Debt" and Note 8 of the "Notes to Consolidated Financial Statements" contained in Part II, Items 7 and 8, respectively, of our annual report on Form 10-K for the year ended December 31, 20182019 for further discussion.

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Commitments

At June 30, 2019,March 31, 2020, we had unfunded unconditional commitments of $2.3$1.9 million to fund tax credit partnership investments and $14.7$12.6 million to fund the purchase of transferable state tax credits. These commitments are recognized as liabilities in our consolidated balancebalance sheets, with a corresponding recognition of other long-term investments and other assets, respectively. In addition, we had commitments of $103.5$88.8 million to fund certain investments in private placement fixed maturity securities, $369.2$524.0 million to fund certain private equity partnerships, and $87.1$17.5 million to fund certain commercial mortgage loans, which may or may not be funded.

With respect to our commitments and off-balance sheet arrangements, see the discussion under "Commitments" in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2018.2019. During the first sixthree months of 2019,2020, there were no substantive changes in our commitments, contractual obligations, or other off-balance sheet arrangements other than the changes noted herein.

Transfers of Financial Assets

Our investment policy permits us to lend fixedfixed maturity securities to unaffiliated financial institutions in short-term securities lending agreements, which increases our investment income with minimal risk. We account for all of our securities lending agreements and repurchase agreements as secured borrowings. We had $5.8 millionAs of March 31, 2020, we did not receive cash collateral from securities lending agreements outstanding at June 30, 2019 which were collateralized by cash and reported as payables for collateral on investments in our consolidated balance sheets. The cash received as collateral was reinvested in short-term investments.agreements. The average balance during the first sixthree months of 20192020 was $2.0 million, and the maximum amount outstanding at any month end was $5.9 million.de minimis. In addition, at June 30, 2019,March 31, 2020, we had $274.5$5.5 million of off-balance sheet securities lending agreements which were collateralized


by securities that we were neither permitted to sell nor control. The average balance of these off-balance sheet transactions during the first sixthree months of 20192020 was $201.7$153.6 million, and the maximum amount outstanding at any month end was $274.5$234.3 million.

To manage our cash position more efficiently, we may enter into repurchase agreements with unaffiliated financial institutions. We generally use repurchase agreements as a means to finance the purchase of invested assets or for short-term general business purposes until projected cash flows become available from our operations or existing investments. We had no repurchase agreements outstanding at June 30, 2019,March 31, 2020, nor did we utilize any repurchase agreements during the first sixthree months of 2019.2020. Our use of repurchase agreements and securities lending agreements can fluctuate during any given period and will depend on our liquidity position, the availability of long-term investments that meet our purchasing criteria, and our general business needs.

Certain of our U.S. insurance subsidiaries are members of regional Federal Home Loan Banks (FHLB). As of June 30, 2019,March 31, 2020, we owned $18.5$34.0 million of FHLB common stock and had no outstanding advances of $451.7 million from the regional FHLBs.

See Note 4 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further information.

Consolidated Cash Flows

(in millions of dollars)   
 Six Months Ended June 30
 2019 2018
Net Cash Provided by Operating Activities$942.7
 $696.2
Net Cash Used by Investing Activities(1,007.2) (601.6)
Net Cash Provided (Used) by Financing Activities31.3
 (72.5)
Net Increase (Decrease) in Cash and Bank Deposits$(33.2) $22.1
(in millions of dollars)
Three Months Ended March 31
20202019
Net Cash Provided by Operating Activities$219.9  $516.8  
Net Cash Provided (Used) by Investing Activities122.6  (365.2) 
Net Cash Used by Financing Activities(89.4) (183.5) 
Net Change in Cash and Bank Deposits$253.1  $(31.9) 

Operating Cash Flows

Operating cash flows are primarily attributable to the receipt of premium and investment income, offset by payments of claims, commissions, expenses, and income taxes. Premium income growth is dependent not only on new sales, but on policy renewals and growth of existing business, renewal price increases, and persistency. Investment income growth is dependent on the growth in the underlying assets supporting our insurance reserves and capital and on the earned yield. The level of commissions and operating expenses is attributable to the level of sales and the first year acquisition expenses associated with new business as well as the maintenance of existing business. The level of paid claims is affected partially by the growth and aging of the block of business and also by the general economy, as previously discussed in the operating results by segment.
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Investing Cash Flows

Investing cash inflows consist primarily of the proceeds from the sales and maturities of investments.  Investing cash outflows consist primarily of payments for purchases of investments.  Our investment strategy is to match the cash flows and durations of our assets with the cash flows and durations of our liabilities to meet the funding requirements of our business. When market opportunities arise, we may sell selected securities and reinvest the proceeds to improve the yield and credit quality of our portfolio. We may at times also sell selected securities and reinvest the proceeds to improve the duration matching of our assets and liabilities and/or re-balance our portfolio. As a result, sales before maturity may vary from period to period. The sale and purchase of short-term investments is influenced by proceeds received from FHLB funding advances, issuance of debt, our securities lending program, and by the amount of cash which is at times held in short-term investments to facilitate the availability of cash to fund the purchase of appropriate long-term investments, repay maturing debt, fund acquisitions, and/or to fund our capital deployment program.

See Note 4 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further information.

Financing Cash Flows

Financing cash flows consist primarily of borrowings and repayments of debt, issuance or repurchase of common stock, and dividends paid to stockholders.

In June 2019, we issued $400.0 million of 4.00% senior notes due 2029 and received total proceeds of $395.9 million.



During each of the first sixthree months of 20192020 and 2018,2019 we made principal payments of $30.0$15.0 million on our senior secured non-recourse notes issued by Northwind Holdings.

In May 2018, we issued $300.0 million of 6.25% junior subordinated notes due 2058 and received total proceeds of $290.7 million.

Cash used to repurchase shares of Unum Group's common stock during the first six monthsquarter of 2019 and 2018 was $200.2 million and $205.8 million, respectively, with a portion of the cash used in 2018 related to the settlement of amounts due on shares purchased in the fourth quarter 2017.$100.0 million. During the first sixthree months of 20192020 and 2018,2019 we paid dividends of $110.9$57.8 million and $103.3$55.7 million, respectively, to holders of Unum Group's common stock.

See Notes 10 and 1312 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 and "Debt" contained in this Item 2 for further information.

Ratings

AM Best, Fitch Ratings (Fitch), Moody's Investors Service (Moody's), and Standard & Poor's Rating Services (S&P) are among the third parties that assign issuer credit ratings to Unum Group and financial strength ratings to our insurance subsidiaries. Issuer credit ratings reflect an agency's opinion of the overall financial capacity of a company to meet its senior debt obligations. Financial strength ratings are specific to each individual insurance subsidiary and reflect each rating agency's view of the overall financial strength (capital levels, earnings, growth, investments, business mix, operating performance, and market position) of the insuring entity and its ability to meet its obligations to policyholders. Both the issuer credit ratings and financial strength ratings incorporate quantitative and qualitative analyses by rating agencies and are routinely reviewed and updated on an ongoing basis.

We compete based in part on the financial strength ratings provided by rating agencies. A downgrade of our financial strength ratings can be expected to adversely affect us and could potentially, among other things, adversely affect our relationships with distributors of our products and services and retention of our sales force, negatively impact persistency and new sales, particularly large case group sales and individual sales, and generally adversely affect our ability to compete. A downgrade in the issuer credit rating assigned to Unum Group can be expected to adversely affect our cost of capital or our ability to raise additional capital.
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The table below reflects the outlook as well as the issuer credit ratings for Unum Group and the financial strength ratings for each of our traditional insurance subsidiaries as of the date of this filing.

AM BestFitchMoody'sS&P
OutlookStableNegativeNegativeStable
AM BestFitchMoody'sS&P
OutlookStableNegativeStableStable
Issuer Credit RatingsbbbBBBBBB-Baa2Baa3BBB
Financial Strength Ratings
Provident Life and Accident Insurance CompanyAAA-A2A3A
Provident Life and Casualty Insurance CompanyAAA-NRNR
Unum Life Insurance Company of AmericaAAA-A2A3A
First Unum Life Insurance CompanyAAA-A2A3A
Colonial Life & Accident Insurance CompanyAAA-A2A3A
The Paul Revere Life Insurance CompanyAAA-A2A3A
Starmount Life Insurance CompanyA-NRNRNR
Unum Insurance CompanyA-AA-A2A3NR
Unum LimitedNRNRNRA-

NR = not rated

We maintain an ongoing dialogue with the four rating agencies that evaluate us in order to inform them of progress we are making regarding our strategic objectives and financial plans as well as other pertinent issues. A significant component of our


communications involves our annual review meeting with each of the four agencies. We hold other meetings throughout the year regarding our business, including, but not limited to, quarterly updates.

On April 16, 2020, Fitch downgraded the financial strength rating on our rated domestic insurance subsidiaries from A to A- and the issuer credit rating on our senior debt obligations from BBB to BBB- due to ongoing concerns regarding our long-term care exposure and the adequacy of those reserves. In addition, Fitch also maintained a negative outlook following the downgrade due to concerns over the current COVID-19 pandemic and the impact it may have on our financial position and operating results, particularly as it relates to investment returns and claims incidence.

On May 4, 2020, Moody's downgraded the financial strength rating on our rated domestic insurance subsidiaries from A2 to A3 and the issuer credit rating on our senior debt obligations from Baa2 to Baa3 due to concerns around capital flexibility related to future funding requirements for our long-term care reserves. In addition, Moody's updated their outlook from stable to negative due to concerns over the current COVID-19 pandemic and the impact it may have on our financial position and operating results.

Also on May 4, 2020, S&P affirmed their ratings and outlook on our rated insurance subsidiaries and issuer credit ratings on our senior debt obligations.

There have been no other changes in any of the rating agencies' outlooks or ratings during 20192020 prior to the date of this filing.

Agency ratings are not directed toward the holders of our securities and are not recommendations to buy, sell, or hold our securities. Each rating is subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be regarded as an independent assessment, not conditional on any other rating. Given the dynamic nature of the ratings process, changes by these or other rating agencies may or may not occur in the near-term. Based on ourWe have ongoing dialogue with the rating agencies concerning our insurance risk profile, our financial flexibility, our operating performance, and the quality of our investment portfolio, we do not expect any negative actions from any of the fourportfolios. The rating agencies relatedprovide specific criteria and, depending on our performance relative to either Unum Group's current issuer credit ratingsthe criteria, will determine future negative or the financial strength ratings of our insurance subsidiaries. However, in the event that we are unable to meet thepositive rating agency specific guideline values to maintain our current ratings, including but not limited to maintenance of our capital management metrics at the threshold values stated and maintenance of our financial flexibility and operational consistency, we could be placed on a negative credit watch, with a potential for a downgrade to both our issuer credit ratings and our financial strength ratings.actions.

See our annual report on Form 10-K for the year ended December 31, 20182019 for further information regarding our debt and financial strength ratings and the risks associated with rating changes.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to various market risk exposures including interest rate risk and foreign exchange rate risk. With respect to our exposure to market risk, see the discussion under "Investments" in Item 2 of this Form 10-Q and in Part II, Item 7A of our annual report on Form 10-K for the year ended December 31, 2018.2019. During the first sixthree months of 2019,2020, there was no substantive change to our market risk or the management of this risk.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this quarterly report. We assessedevaluated those controls based on criteria established in the 2013 Internal Control - Integrated Framework from the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, these officers concluded that our disclosure controls and procedures were effective as of June 30, 2019.March 31, 2020.

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended, during the quarter ended June 30, 2019March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to Part I, Item 1, Note 11 of the "Notes to Consolidated Financial Statements" for information on legal proceedings.

ITEM 1A. RISK FACTORS

There have been no material changes fromIn addition to the risk factorsother information set forth within this report, consideration should be given to the information disclosed in Item 1A "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2018.2019 and the following risk factor we have added regarding the impacts of the coronavirus disease (COVID-19), which reemphasizes risk factors we have previously disclosed, addresses certain new risks, and provides specific context under the current environment.

The COVID-19 pandemic is negatively impacting certain aspects of our business and, depending on severity and duration, could have a material adverse effect on our financial position, results of operations, liquidity and capital resources, and overall business operations.

The COVID-19 pandemic has caused significant disruption to the global economy and may result in unfavorable impacts to our company as well as the overall insurance industry. Due to the unprecedented nature of these events and the current pace of change in this environment, we cannot fully estimate the duration or ultimate impact of the COVID-19 pandemic at this time. Further events that we are unable to control, such as the further spread or spikes in the number of cases of COVID-19 or the emergence of new strains of coronavirus, and the related responses by government authorities and businesses, may heighten the impacts of COVID-19 and present additional risks. We are closely monitoring several key risks related to our business that may potentially have adverse impacts on our business.

We may experience a significant deterioration or delay in the collectability of premiums from both our group and individual customers due to a rise in unemployment levels, the deterioration of economic conditions and the general uncertainty regarding the financial situation of our customers. Additionally, certain states and other governing bodies have granted premium payment extensions for policyholders while still requiring insurers to pay claims, which, if continued or expanded may put significant strain on our liquidity and capital position in the near term. We are working closely with our customers to understand their respective financial conditions and, if necessary, may develop solutions on a case-by-case basis to allow for additional payment flexibility. However, we may be unable to achieve solutions with some customers that materially improve the likelihood of premium collectability, or such solutions may have other negative consequences to our business. As such, we may experience significant lapse activity which may put strain on our liquidity and capital position and may also result in a decline in both premium income and persistency, particularly if customers do not ultimately return following a lapse. Further, adverse economic conditions may adversely affect the discretionary spending of current or potential customers, which may result in lower sales or other negative changes to customer purchasing patterns.

Depending on the duration and severity of the current economic uncertainty, we may experience an increase in claims incidence due to COVID-19-related claims, particularly in our short-term disability product line, and may also experience unfavorable claim trends due to the historical correlation between economic uncertainty and claims incidence. Unfavorable developments in these factors may adversely impact our liquidity and capital position as well as our reserve margins and overall profitability.

Although we have access to significant amounts of capital, which include credit facilities, FHLB arrangements, and the ability to liquidate certain investments, it may be insufficient or even inaccessible if we are not in compliance with required covenants under our borrowing arrangements or if the associated lenders are unable to provide funds. In addition, if investment markets become illiquid or severely impaired, we may be unable to liquidate our investments in a timely manner.

On April 16, 2020, Fitch downgraded the financial strength ratings on our rated domestic insurance subsidiaries and the issuer credit rating on our senior debt obligations, primarily due to ongoing concerns regarding our historic long-term care exposure and the adequacy of the reserves, and placed us on negative outlook in large part due to the effects of the COVID-19 pandemic. On May 4, 2020, Moody's downgraded our financial strength and issuer credit ratings due to concerns around capital flexibility related to future funding requirements for our long-term care reserves, and placed us on negative outlook due to concerns over the COVID-19 pandemic and the impact it may have on our financial position and operating results. If our financial strength or credit default ratings were to be further downgraded as a result of the disruptions caused by the COVID-19 pandemic, our business could be negatively affected, including our relationship with distribution partners, our ability to compete and our cost of capital and ability to raise additional capital.
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Regarding our financial position and results of operations, the current economic disruption may result in adverse impacts to our future profitability and growth and may also alter the timing and magnitude of our plans for overall business expansion. As previously indicated, we may experience slower premium growth or even declines in premium income resulting from lower sales and persistency. In response to the disruptive economic effects of the COVID-19 pandemic, the Federal Reserve has taken actions to reduce interest rates, and the potential for a sustained low interest rate environment is magnified by the effects of COVID-19 on economic conditions. Further declines in interest rates or the continuance of low interest rates may place substantial pressure on our profit margins as well as on the discount rates used to calculate our insurance liabilities. Furthermore, the current economic conditions may result in the inability for companies to make interest and principal payments on their debt securities or mortgage loans that we hold for investment purposes. Accordingly, although we maintain a disciplined approach regarding our overall investment strategy, we may still incur significant losses that can result in a decline in net investment income and/or material increases in credit losses on our investment portfolio. With respect to our benefits experience, as previously discussed, we may experience higher claims incidence directly related to COVID-19 claims as well as due to generally higher incidence associated with an economic downturn. Other potentially unfavorable impacts that we may experience include the write-off or impairment of intangible/long-lived assets such as DAC, value of business acquired, and goodwill, or the establishment of a valuation allowance regarding the realization of our deferred tax assets.

From an operational perspective, our employees, sales associates, brokers and distribution partners, as well as the workforces of our vendors, service providers and counterparties, may also be adversely affected by the COVID-19 pandemic or efforts to mitigate the pandemic, including government-mandated shutdowns, requests or orders for employees to work remotely, and other social distancing measures. The social distancing measures could result in an adverse impact on our ability to conduct our business, including in our ability to sell our policies, including policies that are traditionally sold in person, and our ability to adjudicate and pay claims in a timely manner. Additionally, the vast majority of our employees are currently working remotely and have been doing so for an extended length of time. This working environment is unprecedented and may expose us to various additional risks that range from potential increases in inefficiency as our employees adapt to their new working environment to more specific risks such as elevated cyber-security vulnerability resulting from the wide-scale remote usage of our company networks and risks to the effectiveness of our internal controls over financial reporting.

See "Executive Summary", "Segment Operating Results", and "Liquidity and Capital Resources" included herein Part 1, Item 2 under "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional discussion.

To the extent the COVID-19 pandemic adversely affects our business, financial position, results of operations, liquidity and capital resources, and overall business operations, it may also have the effect of heightening many of the other risks disclosed in disclosed in Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019 and any subsequent Quarterly Reports on Form 10-Q and other filings we make with the SEC.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information aboutIn May 2019, our shareboard of directors authorized the repurchase activity forof up to $750 million of Unum Group's common stock through November 23, 2020. No shares were purchased during the secondfirst quarter of 2019:2020. At March 31, 2020, the approximate dollar value of shares that may yet be purchased under the program was $516.2 million, however, we do not expect to resume repurchases through the remainder of our currently authorized repurchase program.
 (a) Total
Number of
Shares
Purchased
 (b) Average
Price Paid
per Share (1)
 (c) Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs (2)
 (d) Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under
the Programs (2)
April 1 - April 30, 2019658,715
 $36.83
 658,715
 $375,707,161
May 1 - May 31, 20191,860,681
 34.56
 1,860,681
 727,613,061
June 1 - June 30, 2019345,269
 33.10
 345,269
 716,184,123
Total2,864,665
   2,864,665
  

(1)The average price paid per share excludes the cost of commissions.

(2)In May 2019, our board of directors authorized the repurchase of up to $750 million of Unum Group's common stock through November 23, 2020. This new authorization replaced the May 2018 authorization of $750 million that was scheduled to expire on November 24, 2019.




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ITEM 6. EXHIBITS

Index to Exhibits
Index to Exhibits
Exhibit 4.1
(3.1)
Exhibit 10.1(10.1)
Exhibit 31.1(10.2)
(31.1)
Exhibit 31.2(31.2)
Exhibit 32.1(32.1)
Exhibit 32.2(32.2)
Exhibit 101(101)
The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

(104)Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Unum Group
(Registrant)
Date: July 31, 2019May 5, 2020By:/s/ Steven A. Zabel
Steven A. Zabel
Executive Vice President and Chief Financial Officer
Date: July 31, 2019May 5, 2020By:/s/ Daniel J. WaxenbergCherie A. Pashley
Daniel J. WaxenbergCherie A. Pashley
Senior Vice President, Chief Accounting Officer

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