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Unum Group
2007 Investor Meeting

November 19, 2007
Welcome

Tom White




            2
Safe Harbor Statement

Statements in this presentation that are not historical facts, such as our earnings per share,
retu...
Agenda

9:00 a.m.    Welcome                       Tom White

             Opening Remarks               Tom Watjen

     ...
Opening Remarks

Tom Watjen




                  5
Introduction
                                                                         Board
                              ...
Introduction

                                       2007 Highlights

•   Operating earnings increased 30%*
     – Strong ...
Introduction

                                          2007 Highlights

                      Unum US GIP Benefit Ratio I...
Introduction

                                2007 Highlights
                   Growing Case Count in all Segments
      ...
Introduction

                                    Recent Financial Results

                  Operating EPS               ...
Introduction

                          Recent Financial Results


                              Unum Stock Price

200



...
Introduction

                                        Recent Financial Results
                                           ...
A Different Company

                              More Diversified Earned Premium Base


                                ...
A Different Company

                                     More Diversified Earnings Base*

                  IIP-Closed Bl...
A Different Company

                           More Sources of Premium Growth

                                  % Increa...
A Different Company

                    Significant Financial Flexibility


                                        3/31/...
A Different Company

                      Solid Investment Portfolio


                 Credit Quality of Bond Portfolio
...
A Different Company

                                                     More Predictable Results
                       ...
Outlook

                                     Environment



•   A continued move to voluntary products
     – Underinsure...
Outlook

                                Focus



•   Consistent execution of our operating plans

•   Maintain emphasis o...
Outlook

                           Outstanding Issues



•   Direction of the economy

•   Completion of regulatory claim...
Outlook

                                      Financial Dynamics


                                                      ...
Outlook

                     Short-term Guidance: 2008 Expectations



                Earnings Per Share                ...
Outlook

             Long-term Trends: 2009 and Beyond


                          3Q-2007         Target
               ...
Closing Comments


•   Strong Operating Performance

•   Completed Claims Reassessment Process

•   Completed Closed Block...
Capital Management

Bob Greving




                     26
Agenda


•   Capital Management
    – Northwind
    – Beyond Northwind


•   Enterprise Risk Management

•   Guidance for ...
Capital Management




                     28
Securitization Overview


•   The Northwind securitization transaction creates a rating agency
    and market validated ca...
Diagram of Transaction



                                          Unum
                                         Holding
...
Improved Capital Structure

               Allocated Stockholders’ Equity, IIP – Closed Block
                            ...
Capital Movements



                                                                                    Results
         ...
Northwind Benefits


•   This transaction added to our consistent operating performance,
    further strengthens our balan...
Debt Maturity Profile



700
                        Long-term debt                  New Debt                 Callable bon...
Capital Deployment Plan


                                                                                                ...
Beyond Northwind


•   We have adopted a formal Capital Management Strategy.

•   We intend to manage our business with th...
Beyond Northwind

                                                                2007 pro forma

                        ...
Enterprise Risk Management




                             38
Enterprise Risk Management


                                                       Board of Directors
                   ...
Enterprise Risk Map

                                                                     Unum Group

                    ...
Enterprise Risk Activities


•   Enterprise risk management focus areas include:
    – Credit risk and Interest Rate risk
...
Enterprise Risk Areas of Focus

                                                                     Unum Group

         ...
Credit Risk

 Unum’s Asset Mix as a % of Invested Assets                Industry’s Asset Mix as a % of Invested Assets

  ...
Credit Risk


                                                                                                         Ove...
Interest Rate Risk


                          Interest Margin                                                Cash Flow To...
Capital Position

•   Strengthened Asset Position.
    – Reduced exposure to credit risk
    – Hedging and reserve crediti...
Capital Position


Criteria                                           Guideline       Year-end 2008



RBC ratio for tradi...
Reserves

•   Reserves are evaluated annually - at a minimum.

•   The IBNR reserve is a relatively small component of the...
Reserves


•   In addition to the normal movements due to the underlying risk we
    have had movement in the IBNR reserve...
ERM – Summary Comments

•   Actions in recent years have reduced our exposure to a recession
    similar to that experienc...
Guidance for 2008




                    51
2008 Guidance


•   Earnings per Share: $2.35 to $2.40
    – After-tax operating earnings: expected growth of 9% to 10%
  ...
Rating Agencies and Interest
Rate Management

Tom White




                               53
Agenda

•   Rating Agency Update

•   Interest Rate Management




                                        54
Rating Agency Update




                       55
Targeting an “A” Rating


•   Current Financial Strength Ratings:
     –   A.M. Best            A- (Negative Outlook)
    ...
Targeting an “A” Rating



                                             Actual         Actual   Forecast*   Pro forma**
  ...
Targeting an “A” Rating


  450
                                  UNM             BB 5 yr CDX               Investment Gra...
Interest Rate Management




                           59
Interest Rate Management: Philosophy


•   The mission of the Investment Department is to support corporate
    objectives...
Interest Rate Margin

           Interest Reserve Margins are at or above Target Range

Basis Points

   80

   70

   60
...
Hedging Strategies



                                                                                Historic 10 & 20 yr ...
Hedging Schedule



        Current Hedged Position                       Unhedged Cash Flows

                           ...
New Money Rates Versus Portfolio Yield



10%



       8.02%
                  7.76%
8%
                           7.15%
...
Discount Rate Sensitivity


•   As part of our interest rate management, we monitor the impact of
    changes of our disco...
Operating Segment Review

Unum US




                           66
Agenda


•   Review of 2007 Business Operations

•   Unum US Today

•   2008 Outlook and Opportunities

•   Summary




  ...
Review of 2007 Business Operations




                                     68
2007 Business Operations Review


•   Group Income Protection performance and benefit ratio trend has
    continued to mee...
2007 Business Operations Review

                           Group Income Protection

•   Group Income Protection performan...
Benefits Operations


•   The Benefits Operations organization is now positioned for stable,
    sustainable performance.
...
Benefits Operations

                                    Unum US GIP Benefit Ratio

96%

                                9...
Business Mix Shift

                Group Long-term Income Protection


  Current       2001          2006      9M-2007   ...
Business Mix Shift

                   Group Long-term Income Protection-Average Case Size
$ in millions
         $50,000
...
Group Life and AD&D

                                Premium Income
$ in millions
                                        ...
IIP Recently Issued
                 Multi-Life Sales as % IIP Sales
100%                                                 ...
Long Term Care

                                                                       • Focus has shifted from individual...
Long Term Care

                Individual LTC Rate Increase Activity

•   We are currently in the process of repricing ou...
Voluntary Benefits
                                Premium Income
$ in millions
 $400
                                    ...
Unum US Today




                80
Unum US Today



•   A more diversified business with a focus on core markets and the
    emerging employee paid product a...
Portfolio Diversification

                     Business Mix – Inforce Premium

           VWB,
           4.3%
          ...
Industry Diversification

                                    Other,
                                    13.0%         Ser...
Geographic Diversification

               WA
                                                                            ...
Underwriting

                                 Pricing Discipline

•   We have adopted more conservative underwriting prac...
Incidence Trends

                               Long-term Disability Incidence Index




100%




       -4   -3   -2   -...
Relative Incidence by Case Size

       Group Long-term Income Protection: Incidence by Case Size




1.10


1.00         ...
Benefits Operations

                            Operational Efficiency


•   Benefit operations are now positioned for st...
2008 Outlook and Opportunities




                                 89
2008 Outlook and Opportunities

                      Business Mix – Sales Premium




                                   ...
2008 Outlook and Opportunities

                                 VWB Sales Growth


$ in millions

      $160


          ...
2008 Outlook and Opportunities

                                      Unum Short Term Disability Sales
•   The market cont...
2008 Outlook and Opportunities
                    Converging Trends Point to a Customer Solution

     “Just make it easy...
2008 Outlook and Opportunities



       Simply Unum.
                             Simply Better.
•   Simply Unum combines...
2008 Outlook and Opportunities

                Growth Through Customer Integration

•   Simply Unum offering is geared to...
2008 Outlook and Opportunities

               Case Sales Growth




2003                2007                2011




    ...
2008 Outlook and Opportunities

                       Earned Premium Growth

               Total       Core & Supp   Gro...
Summary




          98
Unum US Summary


•   We will continue to enhance the performance of our Group Income
    Protection line.
    – We will m...
Operating Segment Review

Colonial




                           100
Agenda


•   Review of 2007 Business Operations

•   Colonial Today

•   2008 Outlook and Opportunities

•   Summary




 ...
Review of 2007 Business Operations




                                     102
2007 Business Operations Review


•   Sales & Marketing
     – Continued emphasis on the growth and development of the age...
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Transcript of "1unum group 11907_Investor_Meeting_Presentation"

  1. 1. Unum Group 2007 Investor Meeting November 19, 2007
  2. 2. Welcome Tom White 2
  3. 3. Safe Harbor Statement Statements in this presentation that are not historical facts, such as our earnings per share, return on equity and our Unum US group income protection benefit ratio guidance, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties include such general matters as general economic or business conditions; events or consequences relating to terrorism, acts of war and catastrophes, including natural and man-made disasters; competitive factors, including pricing pressures; legislative, regulatory, accounting, or tax law changes; and the interest rate environment. More specifically, they include fluctuations in insurance reserve liabilities; changes in projected new sales and renewals; variations between projections and actual experience in persistency rates, incidence and recovery rates, pricing and underwriting; retained risks in our reinsurance operations; availability and cost of reinsurance; the level and results of litigation, rating agency actions, and regulatory actions and investigations; actual experience in implementing and complying with the multistate market conduct regulatory settlement agreements and the California Department of Insurance settlement agreement; negative media attention; changes in assumptions relating to deferred acquisition costs, value of business acquired or goodwill; the level of pension benefit costs and funding; investment results, including credit deterioration of investments; the ability of our insurance company subsidiaries to pay dividends or extend credit to us and certain of our intermediate holding company subsidiaries and/or finance subsidiaries; and effectiveness of product support and customer service. For further information of risks and uncertainties that could affect actual results, see our filings with the Securities and Exchange Commission, including information in the sections titled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and subsequently filed 10-Q. The forward-looking statements in this presentation are being made as of the date of this presentation, and we expressly disclaim any obligation to update or revise any forward-looking statement contained herein. 3
  4. 4. Agenda 9:00 a.m. Welcome Tom White Opening Remarks Tom Watjen Capital Management Bob Greving Rating Agencies and Interest Rate Management Tom White Question and Answer 10:15 a.m. Break 10:30 a.m. Operating Segment Reviews - Unum US Kevin McCarthy - Colonial Randy Horn - Unum UK Susan Ring Concluding Comments Tom Watjen Question and Answer 12:00 p.m. Lunch 4
  5. 5. Opening Remarks Tom Watjen 5
  6. 6. Introduction Board of Directors Tom Watjen President and Chief Executive Officer Bob Greving Charles Glick Susan Ring Randy Horn Kevin McCarthy EVP EVP CEO President & CEO President & CEO Chief Fin Officer General Counsel Unum UK Colonial Unum US • Martin Moule • David Parker Frank Williamson Bob Best Chief Financial Officer SVP Joe Foley Unum UK Finance & Risk Mgmt SVP COO Financial Operations SVP & Chief Mkt Ofcr Colonial Strat Plng & Corp Dev Unum US • Roger Martin Chief Financial Officer Tom White Eileen Farrar Unum US SVP SVP Investor Relations Human Resources David Fussell SVP Investments • Martha Leiper SVP Portfolio Management (Bold name indicates in attendance) Corporate Staff Operations 6
  7. 7. Introduction 2007 Highlights • Operating earnings increased 30%* – Strong contribution from each business • Completed claims reassessment process • Completed securitization • Formalized capital strategy guidelines – Announced $700 million share repurchase * Nine months 2007 operating results 7
  8. 8. Introduction 2007 Highlights Unum US GIP Benefit Ratio Improvement * 96% 95.5% 95.3% 95.1% 95% 94.5% 94% 94.0% 93.9% 93.5% 93.4% 93% 92.7% 92.4% 92.1% 92% 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 * Excludes claim reassessment impact 8
  9. 9. Introduction 2007 Highlights Growing Case Count in all Segments Unum US GIP Unum US Group Life 6,000 6,000 5,099 +6% 4,823 4,205 % +10 3,818 4,000 4,000 2,000 2,000 9M-2006 9M-2007 9M-2006 9M-2007 Colonial Unum UK 6,000 1,600 5,506 1,458 5,046 % +22 +9% 1,193 1,200 4,000 800 2,000 400 9M-2006 9M-2007 9M-2006 9M-2007 9
  10. 10. Introduction Recent Financial Results Operating EPS Operating Return on Equity 20% $0.70 $0.60 15% $0.50 10% $0.40 5% $0.30 0% $0.20 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Core Consolidated CDB 2006 2007 10
  11. 11. Introduction Recent Financial Results Unum Stock Price 200 150 100 50 0 Mar- Aug- Jan- Jun- Nov- Apr- Sep- Feb- Jul- Dec- May- Oct- 03 03 04 04 04 05 05 06 06 06 07 07 UNM S&P 500 11
  12. 12. Introduction Recent Financial Results Unum CDS Spreads 450 UNM BB 5 yr CDX Investment Grade 5yr CDX 400 350 300 250 200 1 239 bps 150 100 2 0 bps 50 0 May-04 Nov-04 Jun-05 Jan-06 Aug-06 Mar-07 Oc t-07 Source: JPMorgan Note: CDX are CDS indices traded by the street 1 Difference between Unum 5yr CDS and Investment Grade 5yr CDX in May 2004 2 Difference between Unum 5yr CDS and Investment Grade 5yr CDX in October 2007 12
  13. 13. A Different Company More Diversified Earned Premium Base Colonial IIP-Closed Block Colonial 11% 13% IIP-Closed Block 9% 16% Unum UK 4% Unum UK Other 12% 1% Unum US Other Supplemental 0% & Voluntary 13% Unum US Supplemental & Voluntary Unum US Unum US 18% Large-Case Large-Case 26% 33% Unum US Core Market Unum US 24% Core Market 20% 2002 3Q2007 13
  14. 14. A Different Company More Diversified Earnings Base* IIP-Closed Block IIP-Closed Block 8% 9% Colonial Colonial 19% 13% Unum US GIP 13% Unum US Unum UK GIP 7% 27% Other 6% Unum US Unum UK Group Life 24% 16% Unum US Unum US Supplemental Other Supplemental Unum US & Voluntary 1% & Voluntary Group Life 18% 18% 21% 2002 YTD 2007 * Excludes Corporate segment 14
  15. 15. A Different Company More Sources of Premium Growth % Increase (Decrease) $ million $7,890 +10.3% $8,000 $7,151 $1,014 -8.4% $7,000 $1,106 $971 +140.8% $6,000 $403 $906 +42.3% $637 $5,000 $4,000 $3,000 $5,057 $5,018 -0.8% $2,000 $1,000 $0 2002 2007 est. Unum US Colonial Unum UK IIP - Closed Block 15
  16. 16. A Different Company Significant Financial Flexibility 3/31/03 2007 Guidance Cash at Holding Company $ (755) $ 925 RBC 210% 300% Debt to Total Capital 30.2% 25% (as adjusted) Market Value $2,370 $9,000 (current) ($ millions) 16
  17. 17. A Different Company Solid Investment Portfolio Credit Quality of Bond Portfolio Below Baa Below Baa 6.3% 10.5% Aaa Aaa 22.7% 27.3% Baa Aa 37.7% 8.5% Aa Baa 4.1% 38.1% A A 20.0% 24.8% 9/30/07 12/31/02 17
  18. 18. A Different Company More Predictable Results Actual vs. Estimated EPS – Previous 12 Quarters $0.60 Actual EPS Median Estimate $0.55 $0.50 Quarterly EPS $0.45 $0.40 $0.35 $0.30 Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07* Source: Company filings, IBES and FactSet * Includes net investment income, operating earnings as reported $.60 18
  19. 19. Outlook Environment • A continued move to voluntary products – Underinsured, aging population with limited savings creates demand for coverage • Employer budgets under continued pressure – Creates the need for providing simplicity and flexibility • Market trends likely to lead to increased regulation – Requires management to be more aware of the environment 19
  20. 20. Outlook Focus • Consistent execution of our operating plans • Maintain emphasis on disciplined, profitable growth • Better leverage our leadership position 20
  21. 21. Outlook Outstanding Issues • Direction of the economy • Completion of regulatory claims examination • Consistent execution 21
  22. 22. Outlook Financial Dynamics Allocated 3Q-2007 Allocated 3Q-2007 Stockholders’ Equity Leveraged ROE Stockholders’ Equity Leveraged ROE $1,009 32.4% $2,594 2.3% $843 24.2% $6,392 15.5% $4,540 10.2% Unum UK IIP - Closed Block Colonial Core Operations - Unum US Unum US - Colonial - Unum UK $ Millions 22
  23. 23. Outlook Short-term Guidance: 2008 Expectations Earnings Per Share $2.35 to $2.40* Return on Equity: Core 15.5% to 16.0% Total Company 11.0% to 11.5% Capital Position Liquidity >$300mm Leverage 24% - 25% RBC 315% - 325% *Assumes ATOE growth of 9% - 10% and mid-year execution of announced share repurchase. 23
  24. 24. Outlook Long-term Trends: 2009 and Beyond 3Q-2007 Target ROE ROE Unum US 10.2% 11% - 13% Unum UK 32.4% 26% – 28% Colonial 24.2% 20% – 22% Core Total 15.5% 15% – 16% IIP - Closed Block 2.3% 2% - 3% Company Total 11.2% 11.5% - 13.0% 24
  25. 25. Closing Comments • Strong Operating Performance • Completed Claims Reassessment Process • Completed Closed Block Securitization • Formalized Capital Management Guidelines – Announced $700 million share repurchase • Solid Plans for 2008 25
  26. 26. Capital Management Bob Greving 26
  27. 27. Agenda • Capital Management – Northwind – Beyond Northwind • Enterprise Risk Management • Guidance for 2008 27
  28. 28. Capital Management 28
  29. 29. Securitization Overview • The Northwind securitization transaction creates a rating agency and market validated capital structure for our IIP - Closed Block of business that enhances the overall efficiency of our capital. • The dynamics of the IIP - Closed Block securitization are similar to the mechanics involved in a XXX securitization. • The basic steps with Northwind involved: Formation of a new holding company (Northwind Holdings, LLC) issuer of $800 1 million in debt securities; sold in a private placement transaction 2 Capitalization of a newly created captive reinsurance company (Northwind Re) 3 Reinsurance of the IIP - Closed Block business Payment of extraordinary dividends to release excess capital from insurance 4 subsidiaries to holding company 29
  30. 30. Diagram of Transaction Unum Holding Company Equity Dividends Over Time Bond Insurer um mi Excess Capital e Pr 4 Released with Northwind Risk Transfer Credit Pr Holdings, LLC wrap oc ee ds te r 1 In Investors 2 Capital pr est (non-recourse inc an ipa d l to Unum) Dividends Over Time Ceding Commission Insurance subs 3 Northwind Re –PLA, PRL, UA Reinsurance contract 30
  31. 31. Improved Capital Structure Allocated Stockholders’ Equity, IIP – Closed Block as of September 30, 2007 Amount Represented by Non-Recourse Debt Actual Pro Forma Amount Represented by Unum’s $2,594 Allocated Stockholders’ Equity $2,190 Benefits • Financial markets validate appropriate reserves and $800 capital level; less total allocated stockholders’ equity • Unum capital substituted with debt financing tied to block’s performance; no refinancing risk • Debt issued is non-recourse $1,390 to Unum Group creditors • Transaction yield enhanced financial flexibility at both the subsidiary and holding company levels ($ millions) 31
  32. 32. Capital Movements Results +$800 • Ceding companies capitalized at 300% RBC • Northwind Re capitalized +$1,600 at 200% RBC • Pricing of Northwind Holdings debt validates $1,130 appropriate capitalization -$1,270 for reinsured policies • $1.1 billion available for use by Unum Group Statutory Capital Non-recourse Capitalization of Net Proceeds Potentially Northwind Debt Northwind Re from Available from Securitization Closed Block ($ millions) 32
  33. 33. Northwind Benefits • This transaction added to our consistent operating performance, further strengthens our balance sheet position, and creates shareholder value through a share repurchase of up to $700 million. • The use of Northwind proceeds coupled with the excess capital at the holding company level will be redeployed to meet the following metrics: – Boost RBC to 320% – Reduce debt by $800 million • $150 million retired in Feb 2007 • $150 million PINES call • $400 million debt tender • $100 million other debt retirement – Target holding company liquidity of $300 million 33
  34. 34. Debt Maturity Profile 700 Long-term debt New Debt Callable bonds ACES $150m 600 PINES ACES Participation called $150m 500 400 $150 300 $500 200 $332 $325 $300 $250 $250 $200 100 $175 $0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2018 2022 2027 2028 2032 2038 $400m Tender Offer Targets $ millions An additional $100 million of debt will be retired during 2008 34
  35. 35. Capital Deployment Plan Results • RBC increases to 320% +$1,130 • Leverage maintained at 25% • Holding company -$350 liquidity above target of one year of fixed charges • Share repurchase of up $925 to $700 million -$800 • ROE enhanced by 70 basis points; EPS >$300 increases with share repurchase -$700 Holding Net Proceeds Increase Debt Maximum Stock Estimated Net Holding C ompany from C apital & Repurchase Repurchase C ash Flow for C ompany Liquidity - 2007 Securitization Surplus of 2008 Liquidity - 2008 Estimate Prior Insurance Estimate to Northwind C ompanies ($ millions) 35
  36. 36. Beyond Northwind • We have adopted a formal Capital Management Strategy. • We intend to manage our business with these threshold targets: – 300% RBC – 25% leverage ratio, excluding non-recourse debt – Holding company cash equal to one year of fixed charges • We may leverage our working knowledge of the securitization market to add further efficiencies. 36
  37. 37. Beyond Northwind 2007 pro forma Special purpose reinsurance vehicles Unum Group Excluding Special Purpose Reinsurance Tailwind UPIL Northwind Vehicles 1) RBC - Traditional U.S Life Insurance Company 322% 228% 200% 200% 2) Leverage 25.0% 85.7% NM 34.9% Adjusted for pensions and leases 30.1% 85.7% NM 34.9% 3) EBIT coverage 8.8x 3.0x NM 3.0x Adjusted for pensions and leases 7.3x 3.0x NM 3.0x 4) Cash coverage 6.6x 4.2x NM 2.9x NM – not meaningful 37
  38. 38. Enterprise Risk Management 38
  39. 39. Enterprise Risk Management Board of Directors Audit Committee • We have established an appropriate governance structure for ERM at the Company. Executive Risk Management • Our ERM structure allows for risk Committee management oversight at both an enterprise level as well as a CRO business unit level. • ERM is embedded within our business planning process down to the functional level. Unum US Colonial Unum UK Corporate Risk Risk Risk Risk Committee Committee Committee Committee 39
  40. 40. Enterprise Risk Map Unum Group Strategic Risk Rating/Financial Flexibility Customers, Products, and Credit Risk Market Risk Insurance Risk Operational Risk Services Bonds Portfolio Strategy/Hedging Pricing and Underwriting Claims Mgmt Products and Services Reinsurance Interest Rate Reserving Customer Service Distribution FX IT Security Business Concentrations Reputation Human Resources Catastrophe Risk and Business Continuity Key: Capital Allocation Major Risk Category Risk Type Regulatory and Compliance Governance and Legal 40
  41. 41. Enterprise Risk Activities • Enterprise risk management focus areas include: – Credit risk and Interest Rate risk – Business Diversification – Financial Flexibility – including liquidity, capital adequacy, and market access • Management has taken several steps in these areas to better position the organization’s risk profile, including: – Maintenance of a conservative, high quality asset portfolio – Increased diversification within operating segments and across the organization – A stronger financial platform which includes greater holding company liquidity and flexibility, as well as stronger subsidiary capital – Development of access to the capital markets through our securitization efforts and credit facility development 41
  42. 42. Enterprise Risk Areas of Focus Unum Group Strategic Risk Rating/Financial Flexibility Customers, Products, and Credit Risk Market Risk Insurance Risk Operational Risk Services Bonds Portfolio Strategy/Hedging Pricing and Underwriting Claims Mgmt Products and Services Reinsurance Interest Rate Reserving Customer Service Distribution FX IT Security Business Concentrations Reputation Human Resources Catastrophe Risk and Business Continuity Key: Capital Allocation Major Risk Category Focus Areas Regulatory and Compliance Governance and Legal 42
  43. 43. Credit Risk Unum’s Asset Mix as a % of Invested Assets Industry’s Asset Mix as a % of Invested Assets High Yield 4.1% ABS/MBS Investment  17.5% Grade High Yield 75.7% Investment  6.0% Grade 58.1% ABS/MBS Mortgages 10.8% 12.8% Mortgages 2.8% Policy Loans 3.8% Policy Loans 0.5% Real Estate Other Other 0.6% Real Estate Equities Equities 3.0% 2.0% 0.1% 1.1% 1.1% 43
  44. 44. Credit Risk Overexposures Below Inv Grade Credit Exposure $ million 13.9% $450 14.0% $400 12.0% 10.8% $350 10.0% 10.0% $300 8.7% 8.4% 7.6% 8.0% $250 6.9% 6.4% 6.4% 5.8% 6.0%5.8% 6.0% 6.0% $200 6.0% $150 4.0% $100 2.0% $50 0.0% $0 12/01 12/02 12/03 12/04 12/05 12/06 9/07 A a2 A1 A2 A3 B aa1 B aa2 B aa3 B a1 B a2 B a3 B1 B2 B3 C aa1 4Q02 3Q07 Book Value Market Value 44
  45. 45. Interest Rate Risk Interest Margin Cash Flow To Be Hedged 90 1,400 80 1,200 Basis Points 1,000 70 800 60 600 50 400 40 200 30 GIP IIP LTC 0 2008 2009 2010 2011 2012-2017 GIP IIP LTC Mismatch 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 9/30/07 Asset Duration 7.81 8.95 7.55 7.71 7.66 7.31 Liability Duration 9.33 9.65 8.00 8.09 7.97 8.03 Mismatch (1.52) (0.70) (0.45) (0.38) (0.31) (0.72) • Mismatch remains within our tolerance level of ± 10% of liability duration. 45
  46. 46. Capital Position • Strengthened Asset Position. – Reduced exposure to credit risk – Hedging and reserve crediting strategies have reduced exposure to interest rate risk • Improved Capital Position. – More capital in holding company, and access to capital through credit facilities – Both cash levels and RBC levels are positioned with “rainy day” funds in the event of a 2007-2008 down-turn 2003 9/30/2007 Holding Company Liquidity $(755) mm1 $925mm 4 Consolidated Risk-based Capital 210% 2 300% Debt to Total Capital (ex. AOCI) 30.2% 3 24.2% Source: Company filings, Factset and IBES 1 As of 31-Mar-2003; net of inter-company loans 2 As of 31-Dec-2002 3 As of 31-Mar-2003 4 Projected at year-end 2007 46
  47. 47. Capital Position Criteria Guideline Year-end 2008 RBC ratio for traditional U.S. Insurance Cos. >300% 320% Leverage 25% 24% Coverage Earnings before interest and taxes/interest 5 – 6x 8.8x Cash coverage of interest 3 – 4x 6.6x Holding Company liquidity 1x fixed charges Approx. $300m 47
  48. 48. Reserves • Reserves are evaluated annually - at a minimum. • The IBNR reserve is a relatively small component of the overall reserve. – Address some questions we have had • The IBNR reserve is set up to pay claims that have been incurred but not yet reported to the company. – It is a relatively short term reserve with approximately 90% typically released within a year of initial valuation. • The IBNR reserve increases or decreases based upon the underlying risk including: – The size of the business – measured in premium or lives – The expected claim incidence – The expected average cost of each claim 48
  49. 49. Reserves • In addition to the normal movements due to the underlying risk we have had movement in the IBNR reserve due to the claim reassessment process. • Since the beginning of the reassessment process we have recorded IBNR based upon our estimate of the ultimate claims cost and subsequently released those reserves as the claims moved to an approved status. – IBNR reserves are released but flow into paid claims and reserves. 49
  50. 50. ERM – Summary Comments • Actions in recent years have reduced our exposure to a recession similar to that experienced in 2001-2002. • During 2001 the primary sensitivities to the slower economic cycle were felt by our investment portfolio and by Unum US disability performance. • Today we have: – A more diversified business – Stronger operational practices – A lower credit risk profile – Improved management of our investments – Stronger capital and improved liquidity – A more comprehensive enterprise risk management platform 50
  51. 51. Guidance for 2008 51
  52. 52. 2008 Guidance • Earnings per Share: $2.35 to $2.40 – After-tax operating earnings: expected growth of 9% to 10% – Share repurchase: expected mid-year 2008 execution of up to $700 million share repurchase – Unum US: continued improvement in GIP benefit ratio to drive slightly above trend line earnings growth – Unum UK: below trend line earnings growth reflecting return to more sustainable long-term benefit ratio – Colonial: below trend line earnings growth reflecting return to more sustainable long-term benefit ratio – IIP – Closed Block: lower earnings in 2008 reflecting lower net investment income and continued run-off – Corporate and Other: increased net investment income and lower interest expense 52
  53. 53. Rating Agencies and Interest Rate Management Tom White 53
  54. 54. Agenda • Rating Agency Update • Interest Rate Management 54
  55. 55. Rating Agency Update 55
  56. 56. Targeting an “A” Rating • Current Financial Strength Ratings: – A.M. Best A- (Negative Outlook) – Fitch A- (Stable Outlook) – Moody’s Baa1 (Negative Outlook) – Standard & Poor’s BBB+ (Positive Outlook) • We believe that our capital management targets combined with continued consistency in operating results will allow us to achieve our targeted rating. • Our message to the agencies: – Claim reassessment is complete – GIP results improving and more consistent – Business mix is improving – Franchise is strong – Financial flexibility is strong 56
  57. 57. Targeting an “A” Rating Actual Actual Forecast* Pro forma** 2005 2006 2007 2007 RBC Ratio for traditional US 308% 300% 305% 320% Insurance Companies Leverage 30% 25% 25% 25% Coverage EBIT 4.8x 5.7x 7.8x 8.8x Cash Coverage of Interest 4.1x 5.4x 5.5x 6.6x Holding Company Liquidity $610mm $445mm $925mm >$300mm * Excludes Northwind transaction ** Assumes full year benefit of Northwind transaction 57
  58. 58. Targeting an “A” Rating 450 UNM BB 5 yr CDX Investment Grade 5yr CDX 400 350 Increasing concerns regarding the sub-prime mortgage market contribute to significant widening of spreads 300 250 200 1 239 bps 150 100 2 0 bps 50 0 May-04 Nov-04 Jun-05 Jan-06 Aug-06 Mar-07 Oc t-07 Source: JPMorgan Note: CDX are CDS indices traded by the street 1 Difference between Unum 5yr CDS and Investment Grade 5yr CDX in May 2004 2 Difference between Unum 5yr CDS and Investment Grade 5yr CDX in October 2007 58
  59. 59. Interest Rate Management 59
  60. 60. Interest Rate Management: Philosophy • The mission of the Investment Department is to support corporate objectives by delivering consistent, quality net investment income. • We will quantify and limit interest rate risk. – Asset/liability cash match – Minimize duration mismatch – Hedge future cash flows • We will invest in assets that support product portfolios in a capital-efficient manner according to pricing and reserving assumptions. 60
  61. 61. Interest Rate Margin Interest Reserve Margins are at or above Target Range Basis Points 80 70 60 Target Range 50 40 30 IIP - Closed LTC Unum UK Unum US Unum US Block GIP IIP - Recently Issued Interest Reserve Margins as of 9/30/07 61
  62. 62. Hedging Strategies Historic 10 & 20 yr Swap Rates (3 yrs Forward) $302 $157 $100 7.0 $2,900 $800 6.5 Swap Rates $221 $230 $170 6.0 $110 5.5 5.0 4.5 Source: LehmanLive.com NUGGETTAG:userName=null&plotName=null 2002 2003 2004 2005 2006 2007 USD SWAP 20Y rate USD SWAP 10Y rate Note: Hedge activity represented by circles. 62
  63. 63. Hedging Schedule Current Hedged Position Unhedged Cash Flows Total Total IIP GIP LTC IIP GIP LTC 4Q07 $95 $90 $85 $270 – 4Q07 – – – $565 2008 $160 $80 $325 $155 2008 $57 – $98 $380 2009 $85 – $295 $160 2009 $22 – $138 $240 2010 – – $240 $212 2010 $38 – $174 $205 2011 – – $205 $205 2011 $24 – $181 Total $340 $170 $1,150 $1,660 Total $141 – $591 $732 Given the current interest rate environment in conjunction with our current hedge position, we anticipate no near-term adjustments to our new claim discount rate. 63
  64. 64. New Money Rates Versus Portfolio Yield 10% 8.02% 7.76% 8% 7.15% 6.93% 6.85% 6.73% 6.72% 6.69% 6.70% 6% 4% 2% 0% 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 3/31/07 6/30/07 9/30/07 Current Portfolio Y ield 10-Year Treasury 64
  65. 65. Discount Rate Sensitivity • As part of our interest rate management, we monitor the impact of changes of our discount rate on reserve requirements for our business lines. • As of quarter-end 3Q07, a 25 basis point reduction in our discount rate would have necessitated an increase in product line reserves of – $4 million for Group Long-term Income Protection – $5 million for Individual Income Protection - Closed Block – $1 million for Individual Income Protection – Recently Issued • We do not anticipate the need to make discount rate changes over the next several quarters. 65
  66. 66. Operating Segment Review Unum US 66
  67. 67. Agenda • Review of 2007 Business Operations • Unum US Today • 2008 Outlook and Opportunities • Summary 67
  68. 68. Review of 2007 Business Operations 68
  69. 69. 2007 Business Operations Review • Group Income Protection performance and benefit ratio trend has continued to meet stated objectives. • Initiatives to diversify the business away from a predominantly income protection product base and employer-paid product focus has been met with initial success and we plan to build on this momentum. • Our growth strategy remains consistent with our commitment to pricing discipline. 69
  70. 70. 2007 Business Operations Review Group Income Protection • Group Income Protection performance has had significant and noticeable improvement. – GIP benefit ratio decreased 60 basis points from 2Q07 to 92.1% in 3Q07 – Current ratio represents a significant improvement from 3Q06 of 94.5% – Remain on target to achieve 90%-92% target by the end of 4Q07 • We are targeting an 88% to 89% GIP Benefit Ratio in the 2008 to 2009 time frame. – Benefit ratio improvement will be driven by continued sales mix shift, underwriting discipline and benefit operations improvements • Improvement to target ranges will result in BTOE/Premium margin of 13.0% to 15.0% for the Unum US operating segment and a leveraged ROE of 11% to 13%. 70
  71. 71. Benefits Operations • The Benefits Operations organization is now positioned for stable, sustainable performance. • The key elements of Benefits Operations performance are: – Increased staffing levels, decreased span of control and greater management involvement in day to day claim decisions – An enhanced claim inventory management system – A greater focus on quality reviews leading to more consistent and predictable outcomes • Benefits Center Operations includes Legal Department oversight. – Dedicated team of attorneys provide oversight controls, monitoring and assisting in both claims response and complaint resolution • Relatively steady decline in the number of new legal cases opened in a given year – New cases have decreased by 76.7% since 2003 71
  72. 72. Benefits Operations Unum US GIP Benefit Ratio 96% 95.5% 95.1% 95% 94.5% 94.0% 93.9% 94% 93.4% 93% 92.7% 92.4% 92.1% 92% 3Q05* 4Q05 1Q06* 2Q06 3Q06* 4Q06 1Q07 2Q07* 3Q07 * Excludes claim reassessment impact 72
  73. 73. Business Mix Shift Group Long-term Income Protection Current 2001 2006 9M-2007 Inforce Inforce Mix New Sales New Sales New Sales Goal 28% 36% 37% 40% 40% Small Small Small Small Small 17% Mid 16% 16% 16% Mid Mid 20% Mid Mid 55% 48% 47% Large Large 44% 40% Large Large Large 73
  74. 74. Business Mix Shift Group Long-term Income Protection-Average Case Size $ in millions $50,000 $39,426 $38,469 $40,086 $40,000 $30,298 $28,461 $30,000 $26,412 $18,114 $20,000 $10,000 2001 2002 2003 2004 2005 2006 9M-07 74
  75. 75. Group Life and AD&D Premium Income $ in millions • Continuing to see a positive $1,800 $1,662 trend in the benefit ratio. $1,606 $1,623 $1,600 $1,463 $1,399 • Despite increasing competition, $1,400 we are maintaining our position while continuing our pricing $1,200 discipline. $1,051 $932 $1,000 • Bundled with GIP product. $800 2002 2003 2004 2005 2006 9M-06 9M-07 Benefit Ratio 100% 77.0% 76.6% 77.7% 76.0% 76.3% 73.9% 80% 60% 40% 20% 0% 2002 2003 2004 2005 2006 9M-07 75
  76. 76. IIP Recently Issued Multi-Life Sales as % IIP Sales 100% • Better risk-reward tradeoff than 93.4% “pure” individual business. 90.2% 90% 85.1% 81.0% 76.6% 80% • Benefit ratio performance trending 73.1% lower, as a result of both pricing 70% discipline and a stronger claims management process. 60% 50% • Complementary line to GIP and 2002 2003 2004 2005 2006 9M-07 VWB. Interest Adjusted Loss Ratio * 70% 60% 46.0% 50% 43.8% 43.5% 42.4% 39.9% 41.5% 40% 30% 20% 10% 0% 2002 2003 2004 2005 2006 9M-07 * As adjusted for special items (’04 to ’05) 76
  77. 77. Long Term Care • Focus has shifted from individual $ in millions Total LTC Sales product to group product, $100 $87.2 $70.9 leveraging our existing distribution $80 system. $60 $38.2 $34.1 $36.1 $40 • Maintaining pricing discipline with $28.0 $22.2 $20 new policy issuance. $0 2002 2003 2004 2005 2006 9M-06 9M-07 • Rate increase activity is underway on the in-force individual block. LTC Sales Mix 100% 80% 60% 70% 40% 76% 62% 49% 20% 38% 27% 0% 2002 2003 2004 2005 2006 9M-07 Group LTC Individual LTC 77
  78. 78. Long Term Care Individual LTC Rate Increase Activity • We are currently in the process of repricing our individual long- term care product and are seeking approval on a state by state basis. • For those effected, the repricing will increase premiums by a total of 20.0% to 30.0% within a phased-in two year period. • Rate increases will impact less than 16% of our current policyholders. • At present this process has resulted in 46 state approvals and $38.0 million in annual additional premium. • We are experiencing strong persistency. 78
  79. 79. Voluntary Benefits Premium Income $ in millions $400 $382 • Positive trends in the benefit $340 ratio as the business mix shifts $350 to disability, accident and supplemental health lines. $302 $293 $286 $300 $259 • Positive growth trend as VWB $250 portfolio expands into the $209 supplemental health lines. $200 2002 2003 2004 2005 2006 9M-06 9M-07 • Continued opportunities for Benefit Ratio integration with Group products 100% through Simply Unum offering. 77.9% 72.5% 80% 69.0% 66.3% 62.6% 59.4% 60% 40% 20% 0% 2002 2003 2004 2005 2006 9M-07 79
  80. 80. Unum US Today 80
  81. 81. Unum US Today • A more diversified business with a focus on core markets and the emerging employee paid product area. • A profitable growth focus that emphasizes underwriting discipline rather than sales volume and market share. • A stronger operational focus on consistent quality enabling us to better withstand any downward economic shift. 81
  82. 82. Portfolio Diversification Business Mix – Inforce Premium VWB, 4.3% VWB, LTC, 9.0% 7.4% LTC, IIP RI, 10.7% GLTIP, 8.0% GLTIP, 37.9% 38.3% IIP RI, 9.6% Group Life and AD&D, Group 30.0% Life and GSTIP, AD&D, 9.7% GSTIP, 22.9% 12.0% 2002 3Q2007 82
  83. 83. Industry Diversification Other, 13.0% Services, 15.5% Public Sector, 5.0% Banking and Finance, 7.4% Retail, 9.0% Education, 7.5% Transportation and Utilities, 4.8% Healthcare, 20.8% Construction and Manufacturing, 17.0% * In-force premium as of 3Q07 83
  84. 84. Geographic Diversification WA ME MT ND VT NH MN OR MA WI NY SD ID MI CT RI WY PA NJ IA NYC NE IN OH DE IL UT NV WV VA CO MD DC CA KS MO KY NC TN AR OK SC NM AZ AL GA MS $100 million plus Alaska LA $50 million - $100 million TX Hawaii $20 million - $50 million FL Puerto Rico $5 million - $20 million $5 million and below *In-force premium as of 3Q07. 84
  85. 85. Underwriting Pricing Discipline • We have adopted more conservative underwriting practices compared to 2001. – Focus on profitable growth, not market share – Heightened accuracy of rate calculation and the addition of a formal quality review program • Significantly higher GLTIP premium per life: $400 $305 $300 $245 $205 $200 GLTIP Prem/Life $100 $0 2001 2001* 2007 * Adjusted for salary and aging changes over time. 85
  86. 86. Incidence Trends Long-term Disability Incidence Index 100% -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Quarters from end of 2001 Recession 86
  87. 87. Relative Incidence by Case Size Group Long-term Income Protection: Incidence by Case Size 1.10 1.00 Aggregate 0.80 Small Mid Large 87
  88. 88. Benefits Operations Operational Efficiency • Benefit operations are now positioned for stable, sustainable performance levels. • Management changes and the new organizational structure have led to improved results. – Increased staffing levels, decreased span of control, and greater management involvement are paying dividends – The claim inventory management system has improved management effectiveness • We are better positioned to maintain performance levels in the event of a potential recession. – Integration issues associated with the merger are behind us – The new claims process forged from the RSA agreement is a more sustainable business model 88
  89. 89. 2008 Outlook and Opportunities 89
  90. 90. 2008 Outlook and Opportunities Business Mix – Sales Premium Group VWB, Large, 7.8% Group 23.3% LTC, Large, 5.8% 44.7% VWB, Group 26.8% IIP RI, Core, 8.4% 32.2% Group Core , 33.3% LTC, IIP RI, 6.9% 10.8% 2002 3Q2007 90
  91. 91. 2008 Outlook and Opportunities VWB Sales Growth $ in millions $160 $134.2 $130.2 $114.1 $120 $109.3 $108.7 $105.8 $79.1 $80 $40 $0 2002 2003 2004 2005 2006 9M-06 9M-07 91
  92. 92. 2008 Outlook and Opportunities Unum Short Term Disability Sales • The market continues to move toward greater 55% 19% employee-funding. 81% • The growth of employee CHOICE elevates the importance of DELIVERY EXCELLENCE to customers and their advisors: 45% – Enrollment – Communication – Individual employee administration – Post-termination relationship with carrier (portability) 2001 2006 100% EE Funded 100% ER Funded or Mixed 92
  93. 93. 2008 Outlook and Opportunities Converging Trends Point to a Customer Solution “Just make it easy for me” “We have no choice but to pass on more of the cost to employees” Benefits people desire Growth in voluntary easy administration and mixed funding Voluntary and Easy mixed funding administration Reduced Choice complexity One size Need for does not fit all reduced complexity “I want to feel knowledgeable when “I want to provide a plan that will meet I talk about this with customers” the specific needs of my customers.” 93
  94. 94. 2008 Outlook and Opportunities Simply Unum. Simply Better. • Simply Unum combines Group & Voluntary coverages on one fully- integrated platform, Unum enrollment resources, and employer cost management capabilities. • In 3Q07, Simply Unum was launched in four markets. • Marketplace reaction from brokers and customers has been very positive. • The national roll-out of Simply Unum is scheduled for 1Q08. 94
  95. 95. 2008 Outlook and Opportunities Growth Through Customer Integration • Simply Unum offering is geared toward increasing customer integration with customers in the <500 lives group. • Approximately 60,000 customers in the less than 500 lives segment. • Have had success in integration with customers with greater than 500 lives. – 80+% of Group Long Term Income Protection customers are integrated with another group coverage – 15+% of Group Long Term Income Protection customers are integrated with one of our Voluntary Benefits products or our Individual Income Protection product 95
  96. 96. 2008 Outlook and Opportunities Case Sales Growth 2003 2007 2011 96
  97. 97. 2008 Outlook and Opportunities Earned Premium Growth Total Core & Supp Group Large 2003 2007 2011 Earned premium growth emerges in 2009 as large case earned premium flattens and growth accelerates in group core and supplemental benefits segment. 97
  98. 98. Summary 98
  99. 99. Unum US Summary • We will continue to enhance the performance of our Group Income Protection line. – We will meet our 2007 objective of a 90% to 92% benefit ratio within this line – We anticipate to be within a 88% to 89% benefit ratio range by late 2008 to early 2009 • We are focused on diversifying our product portfolio through new initiatives such as Simply Unum and increased focus on voluntary benefits sales. – Case sales will continue to grow at 10% to 15% per year and core and supplemental sales premium growth will improve to 10% to 15% • Our growth strategy remains consistent with our commitment to pricing discipline. – Continued focused renewal program – Continued large case discipline in both sales and in inforce management – BTOE/Premium margin will improve to 13.0% to 15.0% and leveraged ROE will improve to 11% to 13% 99
  100. 100. Operating Segment Review Colonial 100
  101. 101. Agenda • Review of 2007 Business Operations • Colonial Today • 2008 Outlook and Opportunities • Summary 101
  102. 102. Review of 2007 Business Operations 102
  103. 103. 2007 Business Operations Review • Sales & Marketing – Continued emphasis on the growth and development of the agency system – Implemented nationwide prospecting program targeted at small employers – Completed next phase of brand development with rollout in January 2008 • Products – Enhanced product manufacturing capabilities and improved speed to market – Broadened product portfolio with a new limited benefit medical plan – Revamped medical gap product to be simpler and more competitive • Enrollment & Customer Services – Released update to new enrollment platform with expanded capabilities – Introduced new capabilities to enhance service for plan administrators • Financial Stability – Continued to deliver strong profit margins through disciplined expense and risk management 103
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