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Unum Group (UNM) SEC Filing 10-Q Quarterly Report for the period ending Wednesday, June 30, 2021

Unum Group

CIK: 5513 Ticker: UNM
Exhibit 99.1
imagea.jpg
1 Fountain Square
Chattanooga, TN 37402
www.unum.com
FOR IMMEDIATE RELEASE
Contacts

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MEDIANatalie Godwin
ngodwin@unum.com
INVESTORSTom White 423-294-8996
tawhite@unum.com

Unum Group Reports Second Quarter 2021 Results

Net income of $182.9 million ($0.89 per diluted common share) for the second quarter of 2021; after-tax adjusted operating income was $286.2 million ($1.39 per diluted common share).

Results reflect improving trend in mortality, strong returns in alternative invested asset portfolio, and strengthening macroeconomic conditions.

Strong balance sheet and liquidity with holding company cash of $1.7 billion; weighted average risk-based capital ratio of approximately 375 percent.

Book value per common share of $53.57 grew 3.2 percent over the year-ago quarter.

Full-year 2021 outlook increased; after-tax adjusted operating income per share now expected to decline 1 percent to 3 percent relative to full-year 2020, compared to an expected decline of 5 percent to 6 percent previously.

CHATTANOOGA, Tenn. (August 3, 2021) - Unum Group (NYSE: UNM) today reported net income of $182.9 million ($0.89 per diluted common share) for the second quarter of 2021, compared to net income of $265.5 million ($1.30 per diluted common share) for the second quarter of 2020.

Included in net income for the second quarter of 2021 are the after-tax cost related to the early retirement of debt of $53.2 million ($0.26 per diluted common share), an after-tax impairment loss on the right-of-use (ROU) asset related to one of our operating leases for office space that we are no longer using to support our general operations of $11.0 million ($0.05 per diluted common share), the net tax expense related to a U.K. tax rate increase of $24.2 million ($0.12 per diluted common share), the after-tax amortization of the cost of reinsurance of $15.5 million ($0.08 per diluted common share), and a net after-tax realized investment gain on the Company’s investment portfolio of $0.6 million ($0.01 per diluted common share). Included in net income for the second quarter of 2020 are an after-tax impairment loss on the ROU asset of $10.0 million ($0.05 per diluted common share), as well as well as a net after-tax realized investment gain on the Company's investment portfolio of $25.4 million ($0.12 per diluted common share). Excluding the items above, after-tax adjusted operating income was $286.2 million ($1.39 per diluted common share) in the second quarter of 2021, compared to $250.1 million ($1.23 per diluted common share) in the second quarter of 2020.

“We are very pleased with our strong second quarter results, highlighted by positive investment returns and aided by improved COVID dynamics relative to the first quarter. Our core business segments exhibited solid underlying fundamental trends, with improving sales and overall stable benefits experience," said Richard P. McKenney, president and chief executive officer. "These favorable results drive an improvement in our outlook for the full year, which we expect to continue to be influenced by the pandemic.”
UNUM IS A REGISTERED TRADEMARK AND MARKETING BRAND OF UNUM GROUP AND ITS INSURING SUBSIDIARIES.

The following information was filed by Unum Group (UNM) on Tuesday, August 3, 2021 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.



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

FORM 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 June 30, 2021

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

Commission file number 001-11294

Unum Group
(Exact name of registrant as specified in its charter)
Delaware
62-1598430
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1 Fountain Square
Chattanooga, Tennessee
37402
(Address of principal executive offices)(Zip 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)

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

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.10 par value
UNM
New York Stock Exchange
6.250% Junior Subordinated Notes due 2058
UNMA
New 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 Filer
xAccelerated filer
Non-accelerated filer¨Smaller reporting company 
Emerging 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 Act). Yes ☐ No ☒

204,393,640 shares of the registrant's common stock were outstanding as of August 2, 2021.








 TABLE OF CONTENTS

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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.
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.
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.
Recoverability and/or realization of the carrying value of our intangible assets, long-lived assets, and deferred tax assets.
Effectiveness of our risk management program.
Contingencies and the level and results of litigation.
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.

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, 2020.

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
 
June 30December 31
20212020
 (in millions of dollars)
(Unaudited)
Assets
Investments
Fixed Maturity Securities - at fair value (amortized cost of $36,910.7; $36,546.5; allowance for credit losses of $—; $6.8)
$43,513.8 $44,137.3 
Mortgage Loans (net of allowance for credit losses of $11.4; $13.1)
2,387.1 2,432.1 
Policy Loans3,608.5 3,683.9 
Other Long-term Investments1,062.9 960.2 
Short-term Investments1,596.6 1,470.0 
Total Investments52,168.9 52,683.5 
Other Assets
Cash and Bank Deposits123.1 197.0 
Accounts and Premiums Receivable (net of allowance for credit losses of $31.0; $38.8)
1,627.6 1,519.3 
Reinsurance Recoverable (net of allowance for credit losses of $12.4; $11.7)
11,303.4 10,666.0 
Accrued Investment Income722.2 611.4 
Deferred Acquisition Costs2,235.7 2,272.6 
Goodwill353.3 353.0 
Property and Equipment499.8 498.0 
Income Tax Receivable— 72.7 
Other Assets1,773.9 1,752.3 
Total Assets$70,807.9 $70,625.8 
    
 See notes to consolidated financial statements.

2


CONSOLIDATED BALANCE SHEETS - Continued

Unum Group and Subsidiaries

June 30December 31
 20212020
 (in millions of dollars)
(Unaudited)
Liabilities and Stockholders' Equity
Liabilities
Policy and Contract Benefits$1,890.4 $1,855.4 
Reserves for Future Policy and Contract Benefits48,952.0 49,653.0 
Unearned Premiums461.1 349.3 
Other Policyholders’ Funds1,751.0 1,663.9 
Income Tax Payable69.0 — 
Deferred Income Tax405.4 416.1 
Long-term Debt3,441.4 3,345.7 
Other Liabilities 2,890.1 2,471.4 
Total Liabilities59,860.4 59,754.8 
Commitments and Contingent Liabilities - Note 11
Stockholders' Equity
Common Stock, $0.10 par
Authorized: 725,000,000 shares
Issued: 307,226,327 and 306,566,572 shares
30.7 30.7 
Additional Paid-in Capital2,386.8 2,376.2 
Accumulated Other Comprehensive Income222.1 374.2 
Retained Earnings11,487.6 11,269.6 
Treasury Stock - at cost: 102,876,514 shares
(3,179.7)(3,179.7)
Total Stockholders' Equity10,947.5 10,871.0 
Total Liabilities and Stockholders' Equity$70,807.9 $70,625.8 

See notes to consolidated financial statements.
3


CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Unum Group and Subsidiaries
 
Three Months Ended June 30Six Months Ended June 30
 2021202020212020
 (in millions of dollars, except share data)
Revenue
Premium Income$2,374.4 $2,368.7 $4,752.7 $4,740.1 
Net Investment Income563.5 569.0 1,112.2 1,154.0 
Net Realized Investment Gain (Loss)0.9 33.8 85.5 (110.2)
Other Income54.2 49.7 114.6 108.4 
Total Revenue2,993.0 3,021.2 6,065.0 5,892.3 
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits1,854.1 1,882.8 3,905.3 3,737.6 
Commissions259.7 273.0 519.6 552.2 
Interest and Debt Expense45.3 47.5 89.7 93.2 
Cost Related to Early Retirement of Debt67.3 — 67.3 — 
Deferral of Acquisition Costs(129.7)(149.9)(260.3)(311.9)
Amortization of Deferred Acquisition Costs136.0 140.7 302.4 316.9 
Compensation Expense247.4 233.2 484.3 472.7 
Other Expenses250.3 256.3 495.3 491.9 
Total Benefits and Expenses2,730.4 2,683.6 5,603.6 5,352.6 
Income Before Income Tax 262.6 337.6 461.4 539.7 
Income Tax Expense (Benefit)
Current50.4 70.6 117.9 128.2 
Deferred29.3 1.5 7.6 (15.0)
Total Income Tax Expense79.7 72.1 125.5 113.2 
Net Income$182.9 $265.5 $335.9 $426.5 
Net Income Per Common Share
Basic$0.89 $1.30 $1.64 $2.10 
Assuming Dilution$0.89 $1.30 $1.64 $2.10 

See notes to consolidated financial statements.
4


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Unum Group and Subsidiaries
 
 Three Months Ended June 30Six Months Ended June 30
 2021202020212020
 (in millions of dollars)
Net Income$182.9 $265.5 $335.9 $426.5 
Other Comprehensive Income (Loss)
Change in Net Unrealized Gain on Securities Before Adjustment (net of tax expense (benefit) of $226.9; $653.9; $(207.3); $217.4)
858.8 2,507.7 (787.2)841.0 
Change in Adjustment to Deferred Acquisition Costs and Reserves for Future Policy and Contract Benefits, Net of Reinsurance (net of tax expense (benefit) of $(165.8); $(510.6); $166.0; $(129.8))
(625.6)(1,939.9)630.9 (493.8)
Change in Net Gain on Hedges (net of tax benefit of $—; $7.1; $5.4; $0.5)
0.4 (24.4)(20.3)(1.6)
Change in Foreign Currency Translation Adjustment (net of tax expense (benefit) of $(0.2); $2.9; $1.6; $0.8)
9.3 (3.0)16.6 (66.6)
Change in Unrecognized Pension and Postretirement Benefit Costs (net of tax expense of $1.2; $1.1; $2.4; $3.0)
4.1 3.9 7.9 10.9 
Total Other Comprehensive Income (Loss)247.0 544.3 (152.1)289.9 
Comprehensive Income $429.9 $809.8 $183.8 $716.4 

See notes to consolidated financial statements.
5


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

Unum Group and Subsidiaries
     
Three Months Ended June 30Six Months Ended June 30
 2021202020212020
 (in millions of dollars)
Common Stock
Balance at Beginning and End of Period$30.7 $30.6 $30.7 $30.6 
Additional Paid-in Capital
Balance at Beginning of Period2,380.8 2,357.3 2,376.2 2,348.1 
Common Stock Activity6.0 6.8 10.6 16.0 
Balance at End of Period2,386.8 2,364.1 2,386.8 2,364.1 
Accumulated Other Comprehensive Income (Loss)
Balance at Beginning of Period(24.9)(217.1)374.2 37.3 
Other Comprehensive Income (Loss)247.0 544.3 (152.1)289.9 
Balance at End of Period222.1 327.2 222.1 327.2 
Retained Earnings
Balance at Beginning of Period11,363.2 10,812.0 11,269.6 10,728.7 
Adjustment to Adopt Accounting Standard Update - Note 2— — — (18.9)
Balance at Beginning of Period, as Adjusted11,363.2 10,812.0 11,269.6 10,709.8 
Net Income182.9 265.5 335.9 426.5 
Dividends to Stockholders (per common share: $0.285; $0.285; $0.570; $0.570)
(58.5)(58.3)(117.9)(117.1)
Balance at End of Period11,487.6 11,019.2 11,487.6 11,019.2 
Treasury Stock
Balance at Beginning and End of Period(3,179.7)(3,179.7)(3,179.7)(3,179.7)
Total Stockholders' Equity at End of Period$10,947.5 $10,561.4 $10,947.5 $10,561.4 

See notes to consolidated financial statements.
6


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Unum Group and Subsidiaries
 
 Six Months Ended June 30
 20212020
 (in millions of dollars)
Cash Flows from Operating Activities
Net Income$335.9 $426.5 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Change in Receivables281.5 91.9 
Change in Deferred Acquisition Costs42.1 5.0 
Change in Insurance Reserves and Liabilities378.2 243.8 
Change in Income Taxes185.2 82.3 
Change in Other Accrued Liabilities(64.8)(52.4)
Non-cash Components of Net Investment Income(246.7)(163.0)
Net Realized Investment (Gain) Loss(85.5)110.2 
Depreciation59.6 55.8 
Cash Related to Reinsurance Agreement(456.8)— 
Amortization of the Cost of Reinsurance39.7 — 
Other, Net75.8 52.3 
Net Cash Provided by Operating Activities544.2 852.4 
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturity Securities268.1 363.5 
Proceeds from Maturities of Fixed Maturity Securities1,393.5 891.7 
Proceeds from Sales and Maturities of Other Investments179.4 114.1 
Purchases of Fixed Maturity Securities(2,122.2)(1,068.3)
Purchases of Other Investments(167.9)(250.2)
Net Purchases of Short-term Investments(72.8)(1,251.0)
Net Increase in Payables for Collateral on Investments72.8 187.0 
Net Purchases of Property and Equipment(57.6)(77.5)
Net Cash Used by Investing Activities(506.7)(1,090.7)
Cash Flows from Financing Activities
Short-term Debt Repayment— 494.1 
Issuance of Long-term Debt588.1 — 
Long-term Debt Repayment(500.0)(30.0)
Cost Related to Early Retirement of Debt(62.8)— 
Issuance of Common Stock1.4 2.3 
Dividends Paid to Stockholders(116.7)(115.8)
Cash Received Related to Active Life Volatility Cover Agreement17.9 — 
Other, Net(39.3)(30.8)
Net Cash Provided (Used) by Financing Activities(111.4)319.8 
Net Increase (Decrease) in Cash and Bank Deposits(73.9)81.5 
Cash and Bank Deposits at Beginning of Year197.0 84.1 
Cash and Bank Deposits at End of Period$123.1 $165.6 

See notes to consolidated financial statements.
7



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Unum Group and Subsidiaries
June 30, 2021
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, 2020.

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, 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.

Note 2 - Accounting Developments

Accounting Updates Adopted in 2021:

Accounting Standards Codification (ASC)DescriptionDate of AdoptionEffect on Financial Statements
ASC 740 "Income Taxes"The amendments in this update simplified 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 simplified 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, 2021The adoption of this update did not have a material effect on our financial position or results of operations.
Summary of Financial Statement Impacts of Accounting Updates Adopted in 2020:
Effective January 1, 2020, we adopted an update under ASC 326 "Financial Instruments - Credit Losses" that 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. The guidance was applied using a modified retrospective approach through a cumulative-effect reduction to retained earnings of $18.9 million 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.
See Note 4 for discussion on the allowance for current expected credit losses on our commercial mortgage loans and the allowance for credit losses on our available-for-sale fixed maturity securities. See Note 12 for discussion on the allowance for expected credit losses on our premiums receivable balances.

8



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
Note 2 - Accounting Developments - Continued
Accounting Updates Outstanding:
ASCDescriptionDate of AdoptionEffect on Financial Statements
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 either by discontinued rates as a direct result of reference rate reform or a market-wide change in interest rates used for discounting, margining or contract price alignment, 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 do not anticipate needing to adopt this guidance, but we will continue to monitor our contracts and hedging relationships throughout the adoption period.
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. January 1, 2023We are currently evaluating the impact of the update and expect that the adoption will have a material impact on our financial position and results of operations and will significantly expand our disclosures. We do not have products with market risk benefits. We will adopt this update using the modified retrospective approach and do not expect to early-adopt this update.



9



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
Note 3 - Fair Values of Financial Instruments - Continued
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 it is a 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 2021, 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 2020.

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 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 agencies
Audited financial statements
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 quotes
Call provisions
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
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 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 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 yieldsVolatility of credit
Transactional data for new issuances and secondary tradesLack of marketability
Security cash flows and structuresPrices obtained from external pricing services
Recent issuance / supply
Security and issuer level spreads
Security creditor ratings/maturity/capital structure/optionality
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
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 Stocks
Valuation MethodPrincipally the market approachPrincipally the market approach
Valuation Techniques / InputsNon-binding broker quotesFinancial statement analysis
Benchmark yields
Comparative bond analysis
Call provisions
Relevant reports issued by analysts and rating agencies
Audited financial statements
Perpetual Preferred and 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 quotes

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 that vary between multiple pricing vendors by a threshold that is outside a normal market range for the 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 prices that did not change from the prior month 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, 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
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, 2021, approximately 25.3 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 74.7 percent of our fixed maturity securities were valued based on non-binding quotes or other observable and unobservable inputs, as discussed below:

58.9 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. 

10.9 percent of our fixed maturity securities were valued based on one or more non-binding broker quotes, if validated by observable market 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.

4.9 percent of our fixed maturity securities were valued based on prices of comparable securities, internal models, or pricing 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.  

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
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, 2021
Investment CategoryFair ValueRedemption Term / Redemption NoticeUnfunded Commitments
(in millions of dollars)(in millions of dollars)
Private Credit(a)$238.8 Not redeemable$176.5 
36.1 Initial 2 year lock on each new investment / Quarterly after 2 year lock with 90 days notice7.8 
Total Private Credit274.9 184.3 
Private Equity(b)305.8 Not redeemable271.8 
13.4Initial 5.5 year lock on each new investment / Quarterly after 5.5 year lock with 90 days notice30.5
Total Private Equity319.2302.3
Real Assets(c)206.2 Not redeemable223.5 
57.9 Quarterly / 90 days notice— 
Total Real Assets264.1 223.5 
Total Partnerships$858.2 $710.1 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
Note 3 - Fair Values of Financial Instruments - Continued
December 31, 2020
Investment CategoryFair ValueRedemption Term / Redemption NoticeUnfunded Commitments
(in millions of dollars)(in millions of dollars)
Private Credit(a)$233.3 Not redeemable$178.9 
40.4 Initial 2 year lock on each new investment / Quarterly after 2 year lock with 90 days notice1.3 
Total Private Credit273.7 180.2 
Private Equity(b)232.6 Not redeemable191.0 
9.2 Initial 5.5 year lock on each new investment / Quarterly after 5.5 year lock with 90 days notice34.3 
Total Private Equity241.8 225.3 
Real Assets(c)176.3 Not redeemable185.2 
55.7 Quarterly / 90 days notice— 
Total Real Assets232.0 185.2 
Total Partnerships$747.5 $590.7 

(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 June 30, 2021, the estimated remaining life of the investments that do not allow for redemptions is approximately 39 percent in the next 3 years, 45 percent during the period from 3 to 5 years, 14 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 June 30, 2021, the estimated remaining life of the investments that do not allow for redemptions is approximately 16 percent in the next 3 years, 35 percent during the period from 3 to 5 years, 48 percent during the period from 5 to 10 years, and 1 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 June 30, 2021, the estimated remaining life of the investments that do not allow for redemptions is approximately 11 percent in the next 3 years, 35 percent during period from 3 to 5 years and 54 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 and generally record investment income on a one-quarter lag in
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
Note 3 - Fair Values of Financial Instruments - Continued
accordance with our accounting policy.

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

 June 30, 2021
 Level 1Level 2Level 3NAVTotal
(in millions of dollars)
Assets
Fixed Maturity Securities
United States Government and Government Agencies and Authorities$102.8 $489.3 $— $— $592.1 
States, Municipalities, and Political Subdivisions69.7 4,398.6 — — 4,468.3 
Foreign Governments— 1,121.9 21.5 — 1,143.4 
Public Utilities712.5 5,800.4 104.5 — 6,617.4 
Mortgage/Asset-Backed Securities— 766.3 14.9 — 781.2 
All Other Corporate Bonds10,127.7 19,378.5 401.0 — 29,907.2 
Redeemable Preferred Stocks— 4.2 — — 4.2 
Total Fixed Maturity Securities11,012.7 31,959.2 541.9 — 43,513.8 
Other Long-term Investments
Derivatives
Forwards— 0.4 — — 0.4 
Foreign Exchange Contracts— 23.0 — — 23.0 
Total Derivatives— 23.4 — — 23.4 
Perpetual Preferred Equity Securities27.6 0.2 5.5 — 33.3 
Private Equity Partnerships— — — 858.2 858.2 
Total Other Long-term Investments27.6 23.6 5.5 858.2 914.9 
Total Financial Instrument Assets Carried at Fair Value$11,040.3 $31,982.8 $547.4 $858.2 $44,428.7 
Liabilities
Other Liabilities
Derivatives
Forwards $— $0.1 $— $— $0.1 
Foreign Exchange Contracts— 44.2 — — 44.2 
Credit Default Swaps— 0.1 — — 0.1 
Embedded Derivative in Modified Coinsurance Arrangement— — 21.2 — 21.2 
Total Derivatives— 44.4 21.2 — 65.6 
Total Financial Instrument Liabilities Carried at Fair Value$— $44.4 $21.2 $— $65.6 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
Note 3 - Fair Values of Financial Instruments - Continued
 December 31, 2020
 Level 1Level 2Level 3NAVTotal
(in millions of dollars)
Assets
Fixed Maturity Securities
United States Government and Government Agencies and Authorities$— $709.8 $— $— $709.8 
States, Municipalities, and Political Subdivisions— 4,245.7 15.5 — 4,261.2 
Foreign Governments— 1,146.4 21.8 — 1,168.2 
Public Utilities131.9 6,644.7 185.7 — 6,962.3 
Mortgage/Asset-Backed Securities— 1,026.4 81.3 — 1,107.7 
All Other Corporate Bonds4,089.4 24,886.1 943.1 — 29,918.6 
Redeemable Preferred Stocks— 9.5 — — 9.5 
Total Fixed Maturity Securities4,221.3 38,668.6 1,247.4 — 44,137.3 
Other Long-term Investments
Derivatives
Foreign Exchange Contracts— 19.7 — — 19.7 
Credit Default Swaps— 0.1 — — 0.1 
Total Derivatives— 19.8 — — 19.8 
Perpetual Preferred Equity Securities8.4 15.2 4.7 — 28.3 
Private Equity Partnerships— — — 747.5 747.5 
Total Other Long-term Investments8.4 35.0 4.7 747.5 795.6 
Total Financial Instrument Assets Carried at Fair Value$4,229.7 $38,703.6 $1,252.1 $747.5 $44,932.9 
Liabilities
Other Liabilities
Derivatives
Forwards$— $0.5 $— $— $0.5 
Foreign Exchange Contracts— 59.2 — — 59.2 
Embedded Derivative in Modified Coinsurance Arrangement— — 39.8 — 39.8 
Total Derivatives— 59.7 39.8 — 99.5 
Total Financial Instrument Liabilities Carried at Fair Value$— $59.7 $39.8 $— $99.5 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
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 June 30, 2021
 Fair Value Beginning of PeriodTotal Realized
and Unrealized
Investment Gains (Losses) in
  Level 3 TransfersFair Value End of PeriodChange in Unrealized Gain (Loss) on Securities Held at the End of Period included in
 Earnings
OCI1
PurchasesSalesIntoOut of
OCI1
Earnings
(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions$— $— $— $— $— $— $— $— $— $— 
Foreign Governments21.7 — (0.2)— — — — 21.5 (0.2)— 
Public Utilities103.4 — 2.3 — 16.8 (18.0)104.5 2.3 — 
Mortgage/Asset-Backed Securities77.2 — (15.5)— (8.4)10.3 (48.7)14.9 (15.5)— 
All Other Corporate Bonds499.2 — 3.7 — (17.1)128.0 (212.8)401.0 3.7 — 
Total Fixed Maturity Securities701.5 — (9.7)— (25.5)155.1 (279.5)541.9 (9.7)— 
Perpetual Preferred Equity Securities
5.2 — — 0.3 — — — 5.5 — — 
Embedded Derivative in Modified Coinsurance Arrangement(22.9)1.7 — — — — — (21.2)— 1.7 

1 Other Comprehensive Income (Loss)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
Note 3 - Fair Values of Financial Instruments - Continued
 Three Months Ended June 30, 2020
 Fair Value Beginning of PeriodTotal Realized and Unrealized Investment Gains (Losses) in  Level 3 TransfersFair Value End of PeriodChange in Unrealized Gain (Loss) on Securities Held at the End of Period included in
 Earnings
OCI1
PurchasesSalesIntoOut of
OCI1
Earnings
(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions$31.3 $— $1.4 $— $— $12.4 $(31.3)$13.8 $(4.5)$— 
Foreign Governments20.9 — 1.1 — — — — 22.0 1.1 — 
Public Utilities26.3 — 7.0 — — 275.9 — 309.2 7.0 — 
Mortgage/Asset-Backed Securities75.1 — (3.9)— — 103.1 — 174.3 1.8 — 
All Other Corporate Bonds553.0 — 18.8 — (28.5)244.0 (240.8)546.5 22.6 — 
Total Fixed Maturity Securities706.6 — 24.4 — (28.5)635.4 (272.1)1,065.8 28.0 — 
Perpetual Preferred Equity Securities
4.6 (0.1)— — — — — 4.5 — (0.1)
Embedded Derivative in Modified Coinsurance Arrangement(109.7)41.9 — — — — — (67.8)— 41.9 

1 Other Comprehensive Income (Loss)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
Note 3 - Fair Values of Financial Instruments - Continued
 Six Months Ended June 30, 2021
 Fair Value Beginning of YearTotal Realized
and Unrealized
Investment Gains (Losses) in
  Level 3 TransfersFair Value End of PeriodChange in Unrealized Gain (Loss) on Securities Held at the End of Period included in
 Earnings
OCI1
PurchasesSalesIntoOut ofOCIEarnings
(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions$15.5 $— $— $— $— $— $(15.5)$— $— $— 
Foreign Governments21.8 — (0.3)— — — — 21.5 (0.3)— 
Public Utilities185.7 — (2.3)— (21.3)36.0 (93.6)104.5 (2.3)— 
Mortgage/Asset-Backed Securities81.3 — (24.7)— (62.0)26.0 (5.7)14.9 (24.7)— 
All Other Corporate Bonds943.1 — (9.0)— (17.4)109.5 (625.2)401.0 (9.0)— 
Total Fixed Maturity Securities1,247.4 — (36.3)— (100.7)171.5 (740.0)541.9 (36.3)— 
Perpetual Preferred Equity Securities
4.7 — — 0.3 — 0.5 — 5.5 — — 
Embedded Derivative in Modified Coinsurance Arrangement(39.8)18.6 — — — — — (21.2)— 18.6 

1 Other Comprehensive Income (Loss)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
Note 3 - Fair Values of Financial Instruments - Continued

 Six Months Ended June 30, 2020
 Fair Value Beginning of YearTotal Realized and Unrealized Investment Gains (Losses) in  Level 3 TransfersFair Value End of PeriodChange in Unrealized Gain (Loss) on Securities Held at the End of Period included in
 Earnings
OCI1
PurchasesSalesIntoOut ofOCIEarnings
(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions$41.8 $— $0.4 $— $— $— $(28.4)$13.8 $(1.7)$— 
Foreign Governments21.8 — 0.2 — — — — 22.0 0.2 — 
Public Utilities14.6 — 2.2 — — 292.4 — 309.2 40.1 — 
Mortgage/Asset-Backed Securities34.1 — (4.0)— — 144.4 (0.2)174.3 10.5 — 
All Other Corporate Bonds600.5 — 1.7 6.0 (29.1)177.8 (210.4)546.5 33.9 — 
Total Fixed Maturity Securities712.8 — 0.5 6.0 (29.1)614.6 (239.0)1,065.8 83.0 — 
Perpetual Preferred Equity Securities
4.6 (0.1)— — — — — 4.5 — (0.1)
Embedded Derivative in Modified Coinsurance Arrangement(22.8)(45.0)— — — — — (67.8)— (45.0)

1 Other Comprehensive Income (Loss)

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
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, 2021
Fair ValueValuation MethodUnobservable InputRange/Weighted Average
(in millions of dollars)
Fixed Maturity Securities
All Other Corporate Bonds - Private$256.5 Market Approach
Lack of Marketability
Volatility of Credit
(a)
(b)
0.11% -1.10% - 0.55%
0.50% - 5.76% / 1.61%
Perpetual Preferred Equity Securities 5.5 Market Approach
Market Convention
(c)Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement(21.2)Discounted Cash Flows
Projected Liability Cash Flows
Weighted Spread of Swap Curve
(d)
Actuarial Assumptions

0.6%

December 31, 2020
Fair ValueValuation MethodUnobservable InputRange/Weighted Average
(in millions of dollars)
Fixed Maturity Securities
All Other Corporate Bonds - Private$45.7 Market Approach
Volatility of Credit

(b)

0.50% - 24.90% / 3.63%

Perpetual Preferred Equity Securities 4.7 Market ApproachMarket Convention(c)Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement(39.8)Discounted Cash Flows
Projected Liability Cash Flows Weighted Spread of Swap Curve
Weighted Spread of Swap Curve
(d)
Actuarial Assumptions

1.0%

(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 value of embedded 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.

23



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
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 value of newly originated, seasoned performing, or sub-performing but likely to continue cash flowing loans are calculated using a discounted cash flow analysis. Loans’ cash flows are modeled and appropriately discounted by a rate based on current yields and credit spreads. For sub and non-performing loans where there is some probability the loan will not continue to pay, a price based approach would be used to estimate the loan’s value in the open market utilizing current transaction information from similar loans.

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 $3,317.4 million and $3,390.6 million as of June 30, 2021 and December 31, 2020, 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.

Federal 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.

24



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
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:
June 30, 2021
Estimated Fair Value
Level 1Level 2Level 3TotalCarrying Value
(in millions of dollars)
Assets
Mortgage Loans$— $2,482.8 $— $2,482.8 $2,387.1 
Policy Loans— — 3,752.5 3,752.5 3,608.5 
Other Long-term Investments
Miscellaneous Long-term Investments— 26.1 19.4 45.5 45.5 
Total Financial Instrument Assets Not Carried at Fair Value$— $2,508.9 $3,771.9 $6,280.8 $6,041.1 
Liabilities
Long-term Debt$3,178.1 $750.6 $— $3,928.7 $3,441.4 
Payable for Collateral on Federal Home Loan Bank (FHLB) Funding Agreements— 286.6 — 286.6 286.6 
Other Liabilities
Unfunded Commitments— 0.7 — 0.7 0.7 
Total Financial Instrument Liabilities Not Carried at Fair Value$3,178.1 $1,037.9 $— $4,216.0 $3,728.7 

25



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
Note 3 - Fair Values of Financial Instruments - Continued

December 31, 2020
Estimated Fair Value
Level 1Level 2Level 3TotalCarrying Value
(in millions of dollars)
Assets
Mortgage Loans$— $2,641.8 $— $2,641.8 $2,432.1 
Policy Loans— — 3,850.8 3,850.8 3,683.9 
Other Long-term Investments
Miscellaneous Long-term Investments— 28.2 29.3 57.5 57.5 
Total Financial Instrument Assets Not Carried at Fair Value$— $2,670.0 $3,880.1 $6,550.1 $6,173.5 
Liabilities
Long-term Debt$2,393.1 $1,494.3 $— $3,887.4 $3,345.7 
Payable for Collateral on Federal Home Loan Bank (FHLB) Funding Agreements— 312.2 — 312.2 312.2 
Other Liabilities
Unfunded Commitments— 0.9 — 0.9 0.9 
Total Financial Instrument Liabilities Not Carried at Fair Value$2,393.1 $1,807.4 $— $4,200.5 $3,658.8 

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.
26



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Unum Group and Subsidiaries
June 30, 2021
Note 4 - Investments
Fixed Maturity Securities

At June 30, 2021 and December 31, 2020, 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, 2021
 Amortized
Cost
ACL(1)
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
(in millions of dollars)
United States Government and Government Agencies and Authorities $469.2 $— $122.9 $— $592.1 
States, Municipalities, and Political Subdivisions3,865.8 — 607.2 4.7 4,468.3 
Foreign Governments913.1 — 232.9 2.6 1,143.4 
Public Utilities5,382.2 — 1,246.2 11.0 6,617.4 
Mortgage/Asset-Backed Securities715.6 — 65.7 0.1 781.2 
All Other Corporate Bonds25,560.8 — 4,388.1 41.7 29,907.2 
Redeemable Preferred Stocks4.0 — 0.2 — 4.2 
Total Fixed Maturity Securities$36,910.7 $— $6,663.2 $60.1 $43,513.8 

December 31, 2020
 Amortized
Cost
ACL(1)
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
(in millions of dollars)
United States Government and Government Agencies and Authorities$559.0 $— $150.8 $— $709.8 
States, Municipalities, and Political Subdivisions3,609.9 — 652.8 1.5 4,261.2 
Foreign Governments902.9 — 266.5 1.2 1,168.2 
Public Utilities5,486.4 — 1,481.9 6.0 6,962.3 
Mortgage/Asset-Backed Securities1,019.9 — 88.0 0.2 1,107.7 
All Other Corporate Bonds24,958.8 6.8 5,013.5 46.9 29,918.6 
Redeemable Preferred Stocks9.6 —