UNM 10-Q Quarterly Report Sept. 30, 2016

UNUM GROUP

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10-Q 1 unm09302016-10xq.htm 10-Q Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)



x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended September 30, 2016



¨	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 1-11294

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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

(Check one): Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

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

232,119,111 shares of the registrant's common stock were outstanding as of October 25, 2016 .

TABLE OF CONTENTS



		Page
	Cautionary Statement Regarding Forward-Looking Statements	1

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):	3

	Consolidated Balance Sheets at September 30, 2016 and December 31, 2015	3

	Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015	5

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015	6

	Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 2016 and 2015	7

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015	8

	Notes to Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	51

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	83

Item 4.	Controls and Procedures	84

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	85

Item 1A.	Risk Factors	85

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85

Item 6.	Exhibits	86

	Signatures	87

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:


•	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 government programs.


•	Unfavorable economic or business conditions, both domestic and foreign.


•	Legislative, regulatory, or tax changes, both domestic and foreign, including the effect of potential legislation and increased regulation in the current political environment.


•	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.


•	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.


•	Increased competition from other insurers and financial services companies due to industry consolidation, new entrants to our markets, or other factors.


•	Execution risk related to our technology needs.


•	Changes in our financial strength and credit ratings.


•	Damage to our reputation due to, among other factors, regulatory investigations, legal proceedings, external events, and/or inadequate or failed internal controls and procedures.


•	Actual experience that deviates from our assumptions used in pricing, underwriting, and reserving.


•	Actual persistency and/or sales growth that is higher or lower than projected.


•	Changes in demand for our products due to, among other factors, changes in societal attitudes, the rate of unemployment, consumer confidence, and/or legislative and regulatory changes, including healthcare reform.


•	Effectiveness of our risk management program.


•	Contingencies and the level and results of litigation.


•	Availability of reinsurance in the market and the ability of our reinsurers to meet their obligations to us.


•	Ineffectiveness of our derivatives hedging programs due to changes in the economic environment, counterparty risk, ratings downgrades, capital market volatility, changes in interest rates, and/or regulation.


•	Changes in accounting standards, practices, or policies.


•	Fluctuation in foreign currency exchange rates.


•	Ability to generate sufficient internal liquidity and/or obtain external financing.


•	Recoverability and/or realization of the carrying value of our intangible assets, long-lived assets, and deferred tax assets.


•	Terrorism, both within the U.S. and abroad, ongoing military actions, and heightened security measures in response to these types of threats.

For further discussion of risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see Part 1, Item 1A of our annual report on Form 10-K for the year ended December 31, 2015.

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.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

Unum Group and Subsidiaries



	September 30		December 31
	2016		2015
	(in millions of dollars)
			As Adjusted
Assets

Investments
Fixed Maturity Securities - at fair value (amortized cost: $39,625.1; $39,658.7)	$	46,315.5	$	43,354.4
Mortgage Loans	1,970.4		1,883.6
Policy Loans	3,432.8		3,395.4
Other Long-term Investments	634.3		583.0
Short-term Investments	755.6		807.3
Total Investments	53,108.6		50,023.7

Other Assets
Cash and Bank Deposits	87.9		112.9
Accounts and Premiums Receivable	1,625.9		1,598.4
Reinsurance Recoverable	4,845.6		4,725.1
Accrued Investment Income	694.4		702.8
Deferred Acquisition Costs	2,048.4		2,008.5
Goodwill	336.8		230.9
Property and Equipment	509.7		523.9
Other Assets	647.8		637.4

Total Assets	$	63,905.1	$	60,563.6

See notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEETS (UNAUDITED) - Continued

Unum Group and Subsidiaries



	September 30			December 31
	2016			2015
	(in millions of dollars)
				As Adjusted
Liabilities and Stockholders' Equity

Liabilities
Policy and Contract Benefits	$	1,483.5		$	1,484.6
Reserves for Future Policy and Contract Benefits	45,745.1			43,540.6
Unearned Premiums	427.8			384.2
Other Policyholders’ Funds	1,619.6			1,674.6
Income Tax Payable	—			6.0
Deferred Income Tax	358.5			91.8
Short-term Debt	—			352.0
Long-term Debt	3,019.8			2,449.4
Payables for Collateral on Investments	440.1			415.4
Other Liabilities	1,449.5			1,501.1

Total Liabilities	54,543.9			51,899.7

Commitments and Contingent Liabilities - Note 10

Stockholders' Equity
Common Stock, $0.10 par
Authorized: 725,000,000 shares
Issued: 303,330,937 and 302,702,811 shares	30.3			30.3
Additional Paid-in Capital	2,263.0			2,247.2
Accumulated Other Comprehensive Income	450.7			16.1
Retained Earnings	8,542.4			7,995.2
Treasury Stock - at cost: 71,235,465 and 61,785,466 shares	(1,925.2		)	(1,624.9		)

Total Stockholders' Equity	9,361.2			8,663.9

Total Liabilities and Stockholders' Equity	$	63,905.1		$	60,563.6

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Unum Group and Subsidiaries



	Three Months Ended September 30						Nine Months Ended September 30
	2016			2015			2016			2015
	(in millions of dollars, except share data)
Revenue
Premium Income	$	2,089.4		$	2,020.8		$	6,258.5		$	6,044.6
Net Investment Income	611.4			612.1			1,841.1			1,844.8
Realized Investment Gain (Loss)
Other-Than-Temporary Impairment Loss on Fixed Maturity Securities	—			(9.4		)	(30.5		)	(22.0		)
Net Realized Investment Gain (Loss), Excluding Other-Than-Temporary Impairment Loss on Fixed Maturity Securities	11.0			(17.2		)	26.3			(19.1		)
Net Realized Investment Gain (Loss)	11.0			(26.6		)	(4.2		)	(41.1		)
Other Income	51.5			51.5			154.6			160.6
Total Revenue	2,763.3			2,657.8			8,250.0			8,008.9

Benefits and Expenses
Benefits and Change in Reserves for Future Benefits	1,742.6			1,690.9			5,205.9			5,047.6
Commissions	256.8			246.3			771.7			747.8
Interest and Debt Expense	45.2			38.1			126.2			113.9
Deferral of Acquisition Costs	(147.8		)	(139.4		)	(447.0		)	(425.1		)
Amortization of Deferred Acquisition Costs	118.8			117.0			377.2			375.4
Compensation Expense	210.1			205.9			620.6			624.0
Other Expenses	205.5			200.1			618.9			603.6
Total Benefits and Expenses	2,431.2			2,358.9			7,273.5			7,087.2

Income Before Income Tax	332.1			298.9			976.5			921.7

Income Tax
Current	84.0			95.1			242.7			241.6
Deferred	12.1			—			50.4			39.1
Total Income Tax	96.1			95.1			293.1			280.7

Net Income	$	236.0		$	203.8		$	683.4		$	641.0

Net Income Per Common Share
Basic	$	1.01		$	0.83		$	2.89		$	2.58
Assuming Dilution	$	1.01		$	0.83		$	2.88		$	2.57

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Unum Group and Subsidiaries



	Three Months Ended September 30						Nine Months Ended September 30
	2016			2015			2016			2015
	(in millions of dollars)
Net Income	$	236.0		$	203.8		$	683.4		$	641.0

Other Comprehensive Income (Loss)
Change in Net Unrealized Gain on Securities Before Adjustment (net of tax expense (benefit) of $113.9; $(89.6); $1,008.1; $(561.7))	277.2			(168.5		)	1,999.2			(1,085.4		)
Change in Adjustment to Deferred Acquisition Costs and Reserves for Future Policy and Contract Benefits, Net of Reinsurance (net of tax expense (benefit) of $(51.7); $113.9; $(707.0); $500.8)	(135.1		)	215.0			(1,400.3		)	953.7
Change in Net Gain on Cash Flow Hedges (net of tax expense (benefit) of $(4.3); $4.7; $(22.3); $7.5)	(8.4		)	13.4			(42.8		)	14.1
Change in Foreign Currency Translation Adjustment (net of tax benefit of $-; $-; $-; $0.1)	(25.8		)	(44.1		)	(131.6		)	(33.2		)
Change in Unrecognized Pension and Postretirement Benefit Costs (net of tax expense of $1.7; $1.4; $5.3; $3.3)	3.0			2.8			10.1			6.4
Total Other Comprehensive Income (Loss)	110.9			18.6			434.6			(144.4		)

Comprehensive Income	$	346.9		$	222.4		$	1,118.0		$	496.6

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

Unum Group and Subsidiaries



	Nine Months Ended September 30
	2016			2015
	(in millions of dollars)
Common Stock
Balance at Beginning of Year and End of Period	$	30.3		$	30.2

Additional Paid-in Capital
Balance at Beginning of Year	2,247.2			2,221.2
Common Stock Activity	15.8			18.0
Balance at End of Period	2,263.0			2,239.2

Accumulated Other Comprehensive Income
Balance at Beginning of Year	16.1			166.4
Other Comprehensive Income (Loss)	434.6			(144.4		)
Balance at End of Period	450.7			22.0

Retained Earnings
Balance at Beginning of Year	7,995.2			7,302.3
Net Income	683.4			641.0
Dividends to Stockholders (per common share: $0.570; $0.515)	(136.2		)	(129.2		)
Balance at End of Period	8,542.4			7,814.1

Treasury Stock
Balance at Beginning of Year	(1,624.9		)	(1,198.2		)
Purchases of Treasury Stock	(300.3		)	(326.2		)
Balance at End of Period	(1,925.2		)	(1,524.4		)

Total Stockholders' Equity at End of Period	$	9,361.2		$	8,581.1

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Unum Group and Subsidiaries



	Nine Months Ended September 30
	2016			2015
	(in millions of dollars)
Cash Flows from Operating Activities
Net Income	$	683.4		$	641.0
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Change in Receivables	(65.7		)	(4.6		)
Change in Deferred Acquisition Costs	(69.8		)	(49.7		)
Change in Insurance Reserves and Liabilities	274.1			233.9
Change in Income Taxes	(0.8		)	164.0
Change in Other Accrued Liabilities	(37.6		)	5.7
Non-cash Components of Net Investment Income	(135.0		)	(139.4		)
Net Realized Investment Loss	4.2			41.1
Depreciation	75.9			74.0
Other, Net	26.2			33.4
Net Cash Provided by Operating Activities	754.9			999.4

Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturity Securities	726.6			605.1
Proceeds from Maturities of Fixed Maturity Securities	1,504.1			1,718.8
Proceeds from Sales and Maturities of Other Investments	257.7			243.4
Purchases of Fixed Maturity Securities	(2,452.3		)	(3,269.5		)
Purchases of Other Investments	(431.4		)	(343.1		)
Net Sales of Short-term Investments	38.6			381.5
Net Increase in Payables for Collateral on Investments	24.7			336.6
Acquisition of Business, Net of Cash Acquired	(128.5		)	(54.3		)
Net Purchases of Property and Equipment	(60.1		)	(73.3		)
Net Cash Used by Investing Activities	(520.6		)	(454.8		)

Cash Flows from Financing Activities
Issuance of Long-term Debt	609.1			—
Long-term Debt Repayments	(399.0		)	(62.6		)
Issuance of Common Stock	3.6			3.0
Repurchase of Common Stock	(309.1		)	(326.2		)
Dividends Paid to Stockholders	(136.2		)	(129.2		)
Other, Net	(27.7		)	(22.8		)
Net Cash Used by Financing Activities	(259.3		)	(537.8		)

Net Increase (Decrease) in Cash and Bank Deposits	(25.0		)	6.8

Cash and Bank Deposits at Beginning of Year	112.9			102.5

Cash and Bank Deposits at End of Period	$	87.9		$	109.3

See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Unum Group and Subsidiaries

September 30, 2016

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, 2015 .

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.

Note 2 - Accounting Developments

Accounting Updates Adopted in 2016:



Accounting Standards Codification (ASC)	Description	Date of Adoption	Effect on Financial Statements

ASC 820 "Fair Value Measurement"	This update eliminated the requirement to categorize within the fair value hierarchy table investments whose fair value is measured at net asset value using the practical expedient. Instead, entities are required to disclose the fair value of these investments so that financial statement users can reconcile amounts reported in the fair value hierarchy table to the amounts reported on the consolidated balance sheets. The guidance is to be applied retrospectively.	January 1, 2016	The adoption of this update had no effect on our financial position or results of operations but will modify certain of our annual reporting period disclosures for invested assets held in our employee benefit plans.

ASC 835 "Interest - Imputation of Interest"	This update simplified the presentation of deferred debt issuance costs by requiring these costs to be presented in the balance sheet as a reduction of the carrying amount of the debt liability to which the deferred costs relate, rather than classifying the deferred costs as an asset. This classification is consistent with the treatment of debt discounts. We applied the amendments in the update retrospectively, adjusting all prior periods in our consolidated financial statements and accompanying notes.	January 1, 2016	The adoption of this update resulted in the following reclassification adjustments to our consolidated balance sheets but had no effect on our financial position or results of operations.



	December 31, 2015
	Historical Accounting Method		As Adjusted		Effect of Change
	(in millions of dollars)
Consolidated Balance Sheets
Short-term Debt	$	352.4	$	352.0	$	(0.4	)
Long-term Debt	2,475.1		2,449.4		(25.7		)
Other Assets	663.5		637.4		(26.1		)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 2 - Accounting Developments - Continued

Accounting Updates Outstanding:



ASC	Description	Date of Adoption	Effect on Financial Statements

ASC 944 "Financial Services - Insurance"	This update changes the disclosure requirements for certain insurance contracts. These changes include a requirement to disclose the rollforward of the liability for unpaid claims and claim adjustment expenses in both interim and annual reporting periods for long-duration and short-duration insurance contracts. Additional claims disclosures will also be required for short-duration contracts. The guidance is to be applied retrospectively.	January 1, 2016 for annual reporting period disclosures and January 1, 2017 for interim reporting period disclosures.	The disclosure requirements for annual reporting period 2016 are not applicable to our insurance contracts. We will adopt the interim reporting period disclosures effective January 1, 2017. The adoption of this update will have no effect on our financial position or results of operations.

ASC 718 "Compensation - Stock Compensation"	This update changes the accounting and disclosure requirements for certain aspects of share-based payments to employees. The update requires all income tax effects of stock-based compensation awards to be recognized in the income statement when the awards vest or are settled. The update also allows an employer to repurchase more of an employee's shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. Transition guidance for the amendments varies between the retrospective, modified retrospective, and prospective methods depending on the specific requirement of the update. Early adoption is also permitted.	January 1, 2017	The adoption of this update will not have a material effect on our financial position or results of operations. During periods in which the vesting date fair value differs materially from the grant date fair value of certain stock-based compensation awards, we may experience volatility in the income tax recognized in our results of operations.

ASC 230 "Statement of Cash Flows"	This update provides clarifying guidance intended to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The update addresses eight specific cash flow issues that relate to various transactions. The guidance is to be applied retrospectively, with early adoption permitted.	January 1, 2018	The adoption of this update will result in reclassifications to certain cash receipts and payments within our consolidated statements of cash flows but will have no effect on our financial position or results of operations.

ASC 606 "Revenue from Contracts with Customers"	This update supersedes virtually all existing guidance regarding the recognition of revenue from customers. Specifically excluded from the scope of this update are insurance contracts, although our fee-based service products are included within the scope. The core principle of this guidance is that revenue recognition should depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance is to be applied retrospectively.	January 1, 2018	The adoption of this update will not have a material effect on our financial position or results of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 2 - Accounting Developments - Continued



ASC	Description	Date of Adoption	Effect on Financial Statements
ASC 825 "Financial Instruments - Overall"	This update changes the accounting and disclosure requirements for certain financial instruments. These changes include a requirement to measure equity investments, other than those that result in consolidation or are accounted for under the equity method, at fair value through net income unless the investment qualifies for certain practicability exceptions. In addition, the update clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale fixed maturity securities. Changes also include the modification of certain disclosures around the fair value of financial instruments, including the requirement for separate presentation of financial assets and liabilities by measurement category, as well as the elimination of certain disclosures around methods and significant assumptions used to estimate fair value. The guidance is to be applied retrospectively.	January 1, 2018	We have not yet determined the expected impact on our financial position or results of operations.

ASC 842 "Leases"	This update changes the accounting for leases, requiring lessees to report most leases on their balance sheets, regardless of whether the lease is classified as a finance lease or an operating lease. For lessees, the initial lease liability is equal to the present value of lease payments, and a corresponding asset, adjusted for certain items, is also recorded. Expense recognition for lessees will remain similar to current accounting requirements for capital and operating leases. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period presented.	January 1, 2019	We have not yet determined the expected impact on our financial position or results of operations.

ASC 326 "Financial Instruments - Credit Losses"	This update amends the guidance on the impairment of financial instruments. The update adds an impairment model known as the current expected credit loss model that is based on expected losses rather than incurred losses and will generally result in earlier recognition of allowances for losses. The current expected credit loss model applies to financial instruments such as mortgage loans, fixed maturity securities classified as held-to-maturity, and certain receivables. The update also modifies the other-than-temporary impairment model used for available-for-sale fixed maturity securities such that credit losses are recognized as an allowance rather than as a reduction in the amortized cost of the security. The reversal of previously recognized credit losses on available-for-sale fixed maturity securities is allowed under specified circumstances. Additional disclosures will also be required, including information used to develop the allowance for losses. The guidance is to be applied to most instruments in scope using a modified retrospective approach at the beginning of the earliest comparative period presented. For available-for-sale fixed maturity securities, the update is applied prospectively. Other-than-temporary impairment losses recognized on available-for-sale fixed maturity securities prior to adoption of the update cannot be reversed.	January 1, 2020	We have not yet determined the expected impact on our financial position or results of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 3 - Fair Values of Financial Instruments

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



	September 30, 2016				December 31, 2015

	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in millions of dollars)
Assets
Fixed Maturity Securities	$	46,315.5	$	46,315.5	$	43,354.4	$	43,354.4
Mortgage Loans	1,970.4		2,137.6		1,883.6		2,013.9
Policy Loans	3,432.8		3,556.7		3,395.4		3,498.0
Other Long-term Investments
Derivatives	37.1		37.1		49.8		49.8
Equity Securities	1.2		1.2		1.4		1.4
Miscellaneous Long-term Investments	540.3		540.3		474.4		474.4

Liabilities
Policyholders' Funds
Deferred Annuity Products	$	602.7	$	602.7	$	608.8	$	608.8
Supplementary Contracts without Life Contingencies	603.7		603.7		641.1		641.1
Short-term Debt	—		—		352.0		366.2
Long-term Debt	3,019.8		3,319.8		2,449.4		2,645.9
Payables for Collateral on Investments
Federal Home Loan Bank (FHLB) Funding Agreements	349.5		349.5		350.0		350.0
Other Liabilities
Derivatives	55.7		55.7		50.2		50.2
Embedded Derivative in Modified Coinsurance Arrangement	73.3		73.3		87.6		87.6
Unfunded Commitments to Investment Partnerships	5.4		5.4		5.0		5.0

The methods and assumptions used to estimate fair values of financial instruments are discussed as follows.

Fair Value Measurements for Financial Instruments Not Carried at Fair Value

Mortgage Loans: Fair values are estimated using discounted cash flow analyses and interest rates currently being offered for similar loans to borrowers with similar credit ratings and maturities. Loans with similar characteristics are aggregated for purposes of the calculations. These financial instruments are assigned a Level 2 within the fair value hierarchy.

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 $3,178.8 million and $3,150.1 million as of September 30, 2016 and December 31, 2015 , 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. These financial instruments are assigned a Level 3 within the fair value hierarchy.

Miscellaneous Long-term Investments: Carrying amounts for tax credit partnerships equal the unamortized balance of our contractual commitments and approximate fair value. Fair values for private equity partnerships are primarily derived from net asset values provided by the general partner in the partnerships' financial statements. Our private equity partnerships represent funds that are primarily invested in railcar leasing, the financial services industry, mezzanine debt, and bank loans. Distributions received from the funds arise from income generated by the underlying investments as well as the liquidation of the underlying investments. As of September 30, 2016 , we estimate that the underlying assets of the funds will be liquidated over the next one

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 3 - Fair Values of Financial Instruments - Continued

to eleven years . These financial instruments are assigned a Level 3 within the fair value hierarchy. Our shares of FHLB common stock are carried at cost, which approximates fair value. These financial instruments are considered restricted investments and are assigned a Level 2 within the fair value hierarchy.

Policyholders' Funds: Policyholders' funds are comprised primarily of deferred annuity products and supplementary contracts without life contingencies and represent customer deposits plus interest credited at contract rates. Carrying amounts approximate fair value. These financial instruments are assigned a Level 3 within the fair value hierarchy.

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.

Short-term Debt: Fair values for short-term debt are determined based on prices from independent pricing services that generally use observable inputs for securities or comparable securities in active markets in their valuation techniques. These financial instruments are assigned a Level 1.

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. Debt instruments which are valued by pricing services using active trades for which there was current market activity in that specific debt instrument have fair values of $1,610.7 million and $956.4 million as of September 30, 2016 and December 31, 2015 , respectively, and are assigned a Level 1 within the fair value hierarchy. Debt instruments which are valued by pricing services that generally use observable inputs for securities or comparable securities in active markets in their valuation techniques have fair values of $1,709.1 million and $1,689.5 million as of September 30, 2016 and December 31, 2015 , respectively, and are assigned a Level 2.

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 and are assigned a Level 2 within the fair value hierarchy.

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 approximate fair value and are assigned a Level 2 within the fair value hierarchy.

Fair Value Measurements for Financial Instruments Carried at Fair Value

We report fixed maturity securities, derivative financial instruments, and unrestricted equity securities at fair value in our consolidated balance sheets. 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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 3 - Fair Values of Financial Instruments - Continued

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 valuation technique provides more observable data than the income approach, considering the type of investments we hold. Our fair value measurements could differ significantly based on the valuation technique and available inputs. When using a pricing service, we obtain the vendor's pricing documentation to ensure we understand their methodologies. We periodically review and approve the selection of our pricing vendors to ensure we are in agreement with their current methodologies. When markets are less active, brokers may rely more on models with inputs based on the information available only to the broker. Our internal investment management professionals, which include portfolio managers and analysts, monitor securities priced by brokers and evaluate their prices for reasonableness based on benchmarking to available primary and secondary market information. In weighing a broker quote as an input to fair value, we place less reliance on quotes that do not reflect the result of market transactions. We also consider the nature of the quote, particularly whether the quote is a binding offer. 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 2016 , we have applied valuation techniques on a consistent basis to similar assets and liabilities and consistent with those techniques used at year end 2015 .

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 presented as follows. 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 2	Level 3
Instrument		Observable Inputs	Unobservable Inputs

United States Government and Government Agencies and Authorities
	Valuation Techniques	Principally the market approach	Not applicable

	Key Inputs	Prices obtained from external pricing services

States, Municipalities, and Political Subdivisions
	Valuation Techniques	Principally the market approach	Principally the market approach

	Key Inputs	Prices obtained from external pricing services	Analysis of similar bonds, adjusted for comparability
		Relevant reports issued by analysts and rating agencies	Non-binding broker quotes
		Audited financial statements	Security and issuer level spreads

Foreign Governments
	Valuation Techniques	Principally the market approach	Principally the market approach

	Key Inputs	Prices obtained from external pricing services	Analysis of similar bonds, adjusted for comparability
		Non-binding broker quotes	Non-binding broker quotes
		Call provisions	Security and issuer level spreads

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 3 - Fair Values of Financial Instruments - Continued



		Level 2	Level 3
Instrument		Observable Inputs	Unobservable Inputs

Public Utilities
	Valuation Techniques	Principally the market and income approaches	Principally the market and income approaches

	Key Inputs	TRACE pricing	Change in benchmark reference
		Prices obtained from external pricing services	Analysis of similar bonds, adjusted for comparability
		Non-binding broker quotes	Discount for size - illiquidity
		Benchmark yields	Non-binding broker quotes
		Transactional data for new issuances and secondary trades	Lack of marketability
		Security cash flows and structures	Security and issuer level spreads
		Recent issuance / supply	Volatility of credit
		Security and issuer level spreads
		Security creditor ratings/maturity/capital structure/optionality
		Public covenants
		Comparative bond analysis
		Relevant reports issued by analysts and rating agencies
		Audited financial statements

Mortgage/Asset-Backed Securities
	Valuation Techniques	Principally the market and income approaches	Principally the market approach

	Key Inputs	Prices obtained from external pricing services	Analysis of similar bonds, adjusted for comparability
		Non-binding broker quotes	Non-binding broker quotes
		Security cash flows and structures	Security and issuer level spreads
		Underlying collateral
		Prepayment speeds/loan performance/delinquencies
		Relevant reports issued by analysts and rating agencies
		Audited financial statements

All Other Corporate Bonds
	Valuation Techniques	Principally the market and income approaches	Principally the market and income approaches

	Key Inputs	TRACE pricing	Change in benchmark reference
		Prices obtained from external pricing services	Analysis of similar bonds, adjusted for comparability
		Non-binding broker quotes	Discount for size - illiquidity
		Benchmark yields	Non-binding broker quotes
		Transactional data for new issuances and secondary trades	Lack of marketability
		Security cash flows and structures	Security and issuer level spreads
		Recent issuance / supply	Volatility of credit
		Security and issuer level spreads
		Security creditor ratings/maturity/capital structure/optionality
		Public covenants
		Comparative bond analysis

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 3 - Fair Values of Financial Instruments - Continued



		Level 2	Level 3
Instrument		Observable Inputs	Unobservable Inputs

		Relevant reports issued by analysts and rating agencies
		Audited financial statements

Redeemable Preferred Stocks
	Valuation Techniques	Principally the market approach	Principally the market approach

	Key Inputs	Non-binding broker quotes	Non-binding broker quotes
		Benchmark yields
		Comparative bond analysis
		Call provisions
		Relevant reports issued by analysts and rating agencies
		Audited financial statements

Equity Securities
	Valuation Techniques	Principally the market approach	Principally the market and income approaches

	Key Inputs	Prices obtained from external pricing services	Financial statement analysis
		Non-binding broker quotes	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 obtained to ensure they are consistent with a variety of observable market inputs and to verify the validity of a security's price. In the event we receive a vendor's market price that does not appear reasonable based on our market analysis, we may challenge the price and request further information about the assumptions and methodologies used by the vendor to price the security. We may change the vendor price based on a better data source such as an actual trade. We also review all price changes from the prior month which fall outside a predetermined corridor. 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.

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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 3 - Fair Values of Financial Instruments - Continued

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.

Certain of our investments do not have readily determinable market prices and/or observable inputs or may at times be affected by the lack of market liquidity. For these securities, we use internally prepared valuations combining matrix pricing with vendor purchased software programs, including valuations based on estimates of future profitability, to estimate the fair value. Additionally, we may obtain prices from independent third-party brokers to aid in establishing valuations for certain of these securities. Key assumptions used by us to determine fair value for 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.

At September 30, 2016 , approximately 19.8 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 highest category of the three-level fair value hierarchy classification wherein inputs are unadjusted and represent quoted prices in active markets for identical assets or liabilities.

The remaining 80.2 percent of our fixed maturity securities were valued based on non-binding quotes or other observable and unobservable inputs, as discussed below.

•

Approximately 66.0 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. Level 2 assets or liabilities are those 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.

•

Approximately 3.3 percent of our fixed maturity securities were valued based on one or more non-binding broker quotes, if validated by observable market data, or on TRACE prices for identical or similar assets absent current market activity. 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.

•

Approximately 10.9 percent of our fixed maturity securities were valued based on prices of comparable securities, matrix pricing, market models, and/or internal models or were valued based on 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. Level 3 is 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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 3 - Fair Values of Financial Instruments - Continued

Fair value measurements by input level for financial instruments carried at fair value are as follows:



	September 30, 2016
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in millions of dollars)
Assets
Fixed Maturity Securities
United States Government and Government Agencies and Authorities	$	285.5	$	1,166.7	$	—	$	1,452.2
States, Municipalities, and Political Subdivisions	—		2,204.6		92.1		2,296.7
Foreign Governments	—		981.7		—		981.7
Public Utilities	632.5		7,385.8		404.3		8,422.6
Mortgage/Asset-Backed Securities	—		2,386.2		—		2,386.2
All Other Corporate Bonds	8,234.9		21,521.3		972.9		30,729.1
Redeemable Preferred Stocks	—		23.5		23.5		47.0
Total Fixed Maturity Securities	9,152.9		35,669.8		1,492.8		46,315.5

Other Long-term Investments
Derivatives
Interest Rate Swaps	—		3.2		—		3.2
Foreign Exchange Contracts	—		33.9		—		33.9
Total Derivatives	—		37.1		—		37.1
Equity Securities	—		—		1.2		1.2

Liabilities
Other Liabilities
Derivatives
Interest Rate Swaps	$	—	$	6.1	$	—	$	6.1
Foreign Exchange Contracts	—		49.2		—		49.2
Credit Default Swaps	—		0.4		—		0.4
Embedded Derivative in Modified Coinsurance Arrangement	—		—		73.3		73.3
Total Derivatives	—		55.7		73.3		129.0

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 3 - Fair Values of Financial Instruments - Continued



	December 31, 2015
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in millions of dollars)
Assets
Fixed Maturity Securities
United States Government and Government Agencies and Authorities	$	97.3	$	1,367.9	$	—	$	1,465.2
States, Municipalities, and Political Subdivisions	—		1,994.9		122.2		2,117.1
Foreign Governments	—		998.7		52.9		1,051.6
Public Utilities	59.1		7,687.2		274.1		8,020.4
Mortgage/Asset-Backed Securities	—		2,481.5		—		2,481.5
All Other Corporate Bonds	2,770.4		23,992.8		1,408.2		28,171.4
Redeemable Preferred Stocks	—		23.4		23.8		47.2
Total Fixed Maturity Securities	2,926.8		38,546.4		1,881.2		43,354.4

Other Long-term Investments
Derivatives
Interest Rate Swaps	—		2.4		—		2.4
Foreign Exchange Contracts	—		47.4		—		47.4
Total Derivatives	—		49.8		—		49.8
Equity Securities	—		—		1.4		1.4

Liabilities
Other Liabilities
Derivatives
Interest Rate Swaps	$	—	$	12.3	$	—	$	12.3
Foreign Exchange Contracts	—		37.6		—		37.6
Credit Default Swaps	—		0.3		—		0.3
Embedded Derivative in Modified Coinsurance Arrangement	—		—		87.6		87.6
Total Derivatives	—		50.2		87.6		137.8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 3 - Fair Values of Financial Instruments - Continued

Transfers of assets between Level 1 and Level 2 are as follows:



	Three Months Ended September 30
	2016				2015
	Transfers into
	Level 1 from Level 2		Level 2 from Level 1		Level 1 from Level 2		Level 2 from Level 1
	(in millions of dollars)
Fixed Maturity Securities
United States Government and Government Agencies and Authorities	$	—	$	418.1	$	—	$	—
States, Municipalities, and Political Subdivisions	—		79.0		—		—
Public Utilities	316.7		487.5		157.2		231.8
All Other Corporate Bonds	2,618.6		3,461.3		2,128.2		2,933.6
Total Fixed Maturity Securities	$	2,935.3	$	4,445.9	$	2,285.4	$	3,165.4



	Nine Months Ended September 30
	2016				2015
	Transfers into
	Level 1 from Level 2		Level 2 from Level 1		Level 1 from Level 2		Level 2 from Level 1
	(in millions of dollars)
Fixed Maturity Securities
United States Government and Government Agencies and Authorities	$	25.0	$	—	$	219.7	$	—
Public Utilities	469.5		29.3		306.1		57.0
All Other Corporate Bonds	4,688.2		957.0		3,665.3		1,156.9
Total Fixed Maturity Securities	$	5,182.7	$	986.3	$	4,191.1	$	1,213.9

Transfers between Level 1 and Level 2 occurred due to the change in availability of either a TRACE or broker market maker price. Depending on current market conditions, the availability of these Level 1 prices can vary from period to period. For fair value measurements of financial instruments that were transferred either into or out of Level 1 or 2, we reflect the transfers using the fair value at the beginning of the period.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

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 September 30, 2016
				Total Realized and Unrealized Investment Gains (Losses) Included in
	Beginning of Period			Earnings			Other Comprehensive Income or Loss			Purchases		Sales			Level 3 Transfers					End of Period
															Into		Out of
	(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions	$	61.6		$	—		$	0.1		$	—	$	—		$	30.4	$	—		$	92.1
Public Utilities	453.5			—			(3.2		)	—		(0.3		)	62.1		(107.8		)	404.3
All Other Corporate Bonds	1,359.6			0.8			8.0			—		(24.0		)	326.2		(697.7		)	972.9
Redeemable Preferred Stocks	23.6			—			(0.1		)	—					—		—			23.5
Total Fixed Maturity Securities	1,898.3			0.8			4.8			—		(24.3		)	418.7		(805.5		)	1,492.8

Equity Securities	1.2			—			—			—		—			—		—			1.2
Embedded Derivative in Modified Coinsurance Arrangement	(83.0		)	9.7			—			—		—			—		—			(73.3		)

	Three Months Ended September 30, 2015
				Total Realized and Unrealized Investment Gains (Losses) Included in
	Beginning of Period			Earnings			Other Comprehensive Income or Loss			Purchases		Sales			Level 3 Transfers					End of Period
															Into		Out of
	(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions	$	136.7		$	—		$	(2.4	)	$	—	$	—		$	—	$	(7.7	)	$	126.6
Foreign Governments	69.8			—			(1.5		)	—		—			—		—			68.3
Public Utilities	357.8			—			1.3			40.0		—			9.0		(88.6		)	319.5
All Other Corporate Bonds	1,321.9			—			(13.9		)	—		(61.9		)	225.1		(456.1		)	1,015.1
Redeemable Preferred Stocks	24.8			—			—			—		—			—		—			24.8
Total Fixed Maturity Securities	1,911.0			—			(16.5		)	40.0		(61.9		)	234.1		(552.4		)	1,554.3

Equity Securities	1.4			—			0.1			—		—			—		—			1.5
Embedded Derivative in Modified Coinsurance Arrangement	(55.8		)	(27.3		)	—			—		—			—		—			(83.1		)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 3 - Fair Values of Financial Instruments - Continued



	Nine Months Ended September 30, 2016
				Total Realized and Unrealized Investment Gains (Losses) Included in
	Beginning of Year			Earnings			Other Comprehensive Income or Loss			Purchases		Sales			Level 3 Transfers					End of Period
															Into		Out of
	(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions	$	122.2		$	—		$	4.2		$	—	$	(0.3	)	$	—	$	(34.0	)	$	92.1
Foreign Governments	52.9			—			—			—		—			—		(52.9		)	—
Public Utilities	274.1			—			3.9			—		(0.7		)	276.9		(149.9		)	404.3
All Other Corporate Bonds	1,408.2			1.4			52.7			20.0		(61.8		)	381.4		(829.0		)	972.9
Redeemable Preferred Stocks	23.8			—			(0.3		)	—		—			—		—			23.5
Total Fixed Maturity Securities	1,881.2			1.4			60.5			20.0		(62.8		)	658.3		(1,065.8		)	1,492.8

Equity Securities	1.4			—			0.1			—		(0.3		)	—		—			1.2
Embedded Derivative in Modified Coinsurance Arrangement	(87.6		)	14.3			—			—		—			—		—			(73.3		)

	Nine Months Ended September 30, 2015
				Total Realized and Unrealized Investment Gains (Losses) Included in
	Beginning of Year			Earnings			Other Comprehensive Income or Loss			Purchases		Sales			Level 3 Transfers					End of Period
															Into		Out of
	(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions	$	140.1		$	—		$	(4.7	)	$	—	$	(0.8	)	$	—	$	(8.0	)	$	126.6
Foreign Governments	69.3			—			(1.0		)	—		—			—		—			68.3
Public Utilities	315.0			—			(2.9		)	40.0		(2.3		)	70.7		(101.0		)	319.5
All Other Corporate Bonds	1,425.3			2.1			(35.8		)	25.0		(142.2		)	307.1		(566.4		)	1,015.1
Redeemable Preferred Stocks	24.9			—			(0.1		)	—		—			—		—			24.8
Total Fixed Maturity Securities	1,974.6			2.1			(44.5		)	65.0		(145.3		)	377.8		(675.4		)	1,554.3

Equity Securities	1.4			—			0.1			—		—			—		—			1.5
Embedded Derivative in Modified Coinsurance Arrangement	(49.9		)	(33.2		)	—			—		—			—		—			(83.1		)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 3 - Fair Values of Financial Instruments - Continued

Realized and unrealized investment gains and losses presented in the preceding tables represent gains and losses only for the time during which the applicable financial instruments were classified as Level 3. The transfers between levels resulted primarily from a change in observability of three inputs used to determine fair values of the securities transferred: (1) transactional data for new issuance and secondary trades, (2) broker/dealer quotes and pricing, primarily related to changes in the level of activity in the market and whether the market was considered orderly, and (3) comparable bond metrics from which to perform an analysis. For fair value measurements of financial instruments that were transferred either into or out of Level 3, we reflect the transfers using the fair value at the beginning of the period. We believe this allows for greater transparency, as all changes in fair value that arise during the reporting period of the transfer are disclosed as a component of our Level 3 reconciliation. Gains (losses) which are included in earnings and are attributable to the change in fair value of assets or liabilities valued using significant unobservable inputs and still held at period end were $9.7 million and $14.3 million for the three and nine months ended September 30, 2016 , respectively, and $(27.3) million and $(33.2) million for the three and nine months ended September 30, 2015 . These amounts relate entirely to the change in fair value of an embedded derivative in a modified coinsurance arrangement and are reported as a component of realized investment gains and losses.

The table below provides quantitative information regarding the significant unobservable inputs used in Level 3 fair value measurements derived from internal models. 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.



	September 30, 2016
	Fair Value			Unobservable Input		Range/Weighted Average
	(in millions of dollars)
Fixed Maturity Securities
All Other Corporate Bonds - Private	$	143.4		Comparability Adjustment Discount for Size Volatility of Credit Market Convention	(b) (c) (e) (f)	0.50% - 0.50% / 0.50% 0.50% - 0.50% / 0.50% 0.25% - 6.72% / 0.97% Priced at Par
Equity Securities - Private	1.1			Market Convention	(f)	Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement	(73.3		)	Projected Liability Cash Flows	(g)	Actuarial Assumptions

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 3 - Fair Values of Financial Instruments - Continued



	December 31, 2015
	Fair Value			Unobservable Input		Range/Weighted Average
	(in millions of dollars)
Fixed Maturity Securities
States, Municipalities, and Political Subdivisions - Private	$	73.3		Change in Benchmark Reference	(a)	0.50% - 1.00% / 0.70%
States, Municipalities, and Political Subdivisions - Public	12.0			Market Convention	(f)	Priced at Par
All Other Corporate Bonds - Private	151.0			Comparability Adjustment Discount for Size Lack of Marketability Volatility of Credit Market Convention	(b) (c) (d) (e) (f)	0.50% - 0.50% / 0.50% 0.50% - 0.50% / 0.50% 1.00% - 2.00% / 1.75% 0.25% - 5.56% / 0.94% Priced at Par
All Other Corporate Bonds - Public	36.2			Lack of Marketability	(d)	1.00% - 1.00% / 1.00%
Equity Securities - Private	1.1			Market Convention	(f)	Priced at Cost or Owner's Equity
Embedded Derivative in Modified Coinsurance Arrangement	(87.6		)	Projected Liability Cash Flows	(g)	Actuarial Assumptions


(a)	Represents basis point adjustments for changes in benchmark spreads associated with various ratings categories


(b)	Represents basis point adjustments for changes in benchmark spreads associated with various industry sectors


(c)	Represents basis point adjustments based on issue/issuer size relative to the benchmark


(d)	Represents basis point adjustments to apply a discount due to the illiquidity of an investment


(e)	Represents basis point adjustments for credit-specific factors


(f)	Represents a decision to price based on par value, cost, or owner's equity when limited data is available


(g)	Represents various actuarial assumptions required to derive the liability cash flows including incidence, termination, and lapse rates

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 4 - Investments

Fixed Maturity Securities

At September 30, 2016 and December 31, 2015 , 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:



	September 30, 2016
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	1,194.7	$	257.5	$	—	$	1,452.2
States, Municipalities, and Political Subdivisions	1,832.5		464.4		0.2		2,296.7
Foreign Governments	749.0		232.7		—		981.7
Public Utilities	6,904.0		1,519.9		1.3		8,422.6
Mortgage/Asset-Backed Securities	2,178.8		207.7		0.3		2,386.2
All Other Corporate Bonds	26,722.1		4,088.8		81.8		30,729.1
Redeemable Preferred Stocks	44.0		3.5		0.5		47.0
Total Fixed Maturity Securities	$	39,625.1	$	6,774.5	$	84.1	$	46,315.5



	December 31, 2015
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	1,265.8	$	207.3	$	7.9	$	1,465.2
States, Municipalities, and Political Subdivisions	1,828.3		293.4		4.6		2,117.1
Foreign Governments	897.2		154.4		—		1,051.6
Public Utilities	6,979.3		1,057.4		16.3		8,020.4
Mortgage/Asset-Backed Securities	2,318.6		167.6		4.7		2,481.5
All Other Corporate Bonds	26,325.5		2,454.1		608.2		28,171.4
Redeemable Preferred Stocks	44.0		3.8		0.6		47.2
Total Fixed Maturity Securities	$	39,658.7	$	4,338.0	$	642.3	$	43,354.4

The following charts indicate the length of time our fixed maturity securities have been in a gross unrealized loss position.



	September 30, 2016
	Less Than 12 Months				12 Months or Greater
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
	(in millions of dollars)
States, Municipalities, and Political Subdivisions	$	21.1	$	0.2	$	1.0	$	—
Public Utilities	64.5		1.0		16.9		0.3
Mortgage/Asset-Backed Securities	9.3		0.2		0.9		0.1
All Other Corporate Bonds	311.5		8.0		932.3		73.8
Redeemable Preferred Stocks	12.7		0.3		10.8		0.2
Total Fixed Maturity Securities	$	419.1	$	9.7	$	961.9	$	74.4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 4 - Investments - Continued



	December 31, 2015
	Less Than 12 Months				12 Months or Greater
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	213.5	$	7.9	$	—	$	—
States, Municipalities, and Political Subdivisions	112.3		4.3		3.3		0.3
Public Utilities	408.4		14.4		10.3		1.9
Mortgage/Asset-Backed Securities	504.3		4.6		9.0		0.1
All Other Corporate Bonds	6,155.0		464.2		554.7		144.0
Redeemable Preferred Stocks	10.4		0.6		—		—
Total Fixed Maturity Securities	$	7,403.9	$	496.0	$	577.3	$	146.3

The following is a distribution of the maturity dates for fixed maturity securities. The maturity dates have not been adjusted for possible calls or prepayments.



	September 30, 2016
	Total Amortized Cost		Unrealized Gain Position				Unrealized Loss Position
	Total Amortized Cost		Gross Gain		Fair Value		Gross Loss		Fair Value
	(in millions of dollars)
1 year or less	$	1,313.5	$	26.9	$	1,333.6	$	0.1	$	6.7
Over 1 year through 5 years	6,304.0		634.1		6,693.0		13.3		231.8
Over 5 years through 10 years	11,073.3		1,269.9		11,663.0		44.6		635.6
Over 10 years	18,755.5		4,635.9		22,868.9		25.8		496.7
	37,446.3		6,566.8		42,558.5		83.8		1,370.8
Mortgage/Asset-Backed Securities	2,178.8		207.7		2,376.0		0.3		10.2
Total Fixed Maturity Securities	$	39,625.1	$	6,774.5	$	44,934.5	$	84.1	$	1,381.0



	December 31, 2015
	Total Amortized Cost		Unrealized Gain Position				Unrealized Loss Position
	Total Amortized Cost		Gross Gain		Fair Value		Gross Loss		Fair Value
	(in millions of dollars)
1 year or less	$	1,112.2	$	20.6	$	1,098.8	$	0.2	$	33.8
Over 1 year through 5 years	6,514.0		554.4		6,649.5		49.8		369.1
Over 5 years through 10 years	10,519.3		746.3		7,124.4		320.5		3,820.7
Over 10 years	19,194.6		2,849.1		18,532.3		267.1		3,244.3
	37,340.1		4,170.4		33,405.0		637.6		7,467.9
Mortgage/Asset-Backed Securities	2,318.6		167.6		1,968.2		4.7		513.3
Total Fixed Maturity Securities	$	39,658.7	$	4,338.0	$	35,373.2	$	642.3	$	7,981.2

At September 30, 2016 , the fair value of investment-grade fixed maturity securities was $42,704.1 million , with a gross unrealized gain of $6,608.9 million and a gross unrealized loss of $15.7 million . The gross unrealized loss on investment-grade fixed maturity securities was 18.7 percent of the total gross unrealized loss on fixed maturity securities. Unrealized losses on investment-grade fixed maturity securities principally relate to changes in interest rates or changes in market or sector credit spreads which occurred subsequent to the acquisition of the securities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 4 - Investments - Continued

At September 30, 2016 , the fair value of below-investment-grade fixed maturity securities was $3,611.4 million , with a gross unrealized gain of $165.6 million and a gross unrealized loss of $68.4 million . The gross unrealized loss on below-investment-grade fixed maturity securities was 81.3 percent of the total gross unrealized loss on fixed maturity securities. Generally, below-investment-grade fixed maturity securities are more likely to develop credit concerns than investment-grade securities. At September 30, 2016 , the unrealized losses in our below-investment-grade fixed maturity securities were generally due to credit spreads in certain industries or sectors and, to a lesser extent, credit concerns related to specific securities. For each specific security in an unrealized loss position, we believe that there are positive factors which mitigate credit concerns and that the securities for which we have not recorded an other-than-temporary impairment will recover in value.

As of September 30, 2016 , we held 147 individual investment-grade fixed maturity securities and 55 individual below-investment-grade fixed maturity securities that were in an unrealized loss position, of which 17 investment-grade fixed maturity securities and 43 below-investment-grade fixed maturity securities had been in an unrealized loss position continuously for over one year. Of the 147 individual investment-grade securities in an unrealized loss position, 113 are held in the portfolio acquired through our purchase of H&J Capital, L.L.C., parent of Starmount Life Insurance Company and AlwaysCare Benefits (which collectively we refer to as Starmount) in the third quarter of 2016. The fair value of the Starmount portfolio was $39.3 million and had a net unrealized loss of $0.2 million at September 30, 2016. See Note 7 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further information.

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


•	Whether we expect to recover the entire amortized cost basis of the security


•	Whether we intend to sell the security or will be required to sell the security before the recovery of its amortized cost basis


•	Whether the security is current as to principal and interest payments


•	The significance of the decline in value


•	The time period during which there has been a significant decline in value


•	Current and future business prospects and trends of earnings


•	The valuation of the security's underlying collateral


•	Relevant industry conditions and trends relative to their historical cycles


•	Market conditions


•	Rating agency and governmental actions


•	Bid and offering prices and the level of trading activity


•	Adverse changes in estimated cash flows for securitized investments


•	Changes in fair value subsequent to the balance sheet date


•	Any other key measures for the related security

While determining other-than-temporary impairments is a judgmental area, we utilize a formal, well-defined, and disciplined process to monitor and evaluate our fixed income investment portfolio, supported by issuer specific research and documentation as of the end of each period. The process results in a thorough evaluation of problem investments and the recording of losses on a timely basis for investments determined to have an other-than-temporary impairment.

We held no fixed maturity securities as of September 30, 2016 or December 31, 2015 for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income.

At September 30, 2016 , we had commitments of $75.5 million to fund private placement fixed maturity securities, the amount of which may or may not be funded.

Variable Interest Entities

We invest in variable interests issued by variable interest entities. These investments include tax credit partnerships, private equity partnerships, and special purpose entities. For those variable interests that are not consolidated in our financial statements, we are not the primary beneficiary because we have neither the power to direct the activities that are most significant

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 4 - Investments - Continued

to economic performance nor the responsibility to absorb a majority of the expected losses. The determination of whether we are the primary beneficiary is performed at the time of our initial investment and at the date of each subsequent reporting period.

As of September 30, 2016 , the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was $507.9 million , comprised of $174.4 million of tax credit partnerships and $333.5 million of private equity partnerships. These variable interest entity investments are reported as other long-term investments in our consolidated balance sheets.

The Company invests in tax credit partnerships primarily for the receipt of income tax credits and tax benefits derived from passive losses on the investments. Amounts recognized in the consolidated statements of income are as follows:



	Three Months Ended September 30						Nine Months Ended September 30
	2016			2015			2016			2015
	(in millions of dollars)
Income Tax Credits	$	10.4		$	10.4		$	31.3		$	31.4
Amortization, net of tax	(5.8		)	(5.9		)	(17.4		)	(17.5		)
Income Tax Benefit	$	4.6		$	4.5		$	13.9		$	13.9

Contractually, we are a limited partner in these tax credit partnerships, and our maximum exposure to loss is limited to the carrying value of our investment, which includes $4.8 million of unfunded unconditional commitments at September 30, 2016 . At September 30, 2016, we also have unfunded unconditional commitments of $0.6 million to fund certain private equity partnerships as well as commitments of $260.4 million , the amount of which may or may not be funded.

We are the sole beneficiary of a special purpose entity which is consolidated in our financial statements. This entity is a securitized asset trust containing a highly rated bond for principal protection and a private equity partnership investment which we contributed into the trust at the time it was established. There are no restrictions on the assets held in this trust, and the trust is free to dispose of the assets at any time. The fair values of the bond and partnership were $153.7 million and $0.9 million , respectively, as of September 30, 2016 . The bond is reported as a component of fixed maturity securities, and the partnership is reported as a component of other long-term investments in our consolidated balance sheets. At September 30, 2016 , we had no commitments to fund the underlying partnership, nor did we fund any amounts to the partnership during the nine months ended September 30, 2016 and 2015 .

Mortgage Loans

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 4 - Investments - Continued

Mortgage loans by property type and geographic region are presented below.



	September 30, 2016				December 31, 2015
	(in millions of dollars)
	Carrying		Percent of		Carrying		Percent of
	Amount		Total		Amount		Total
Property Type
Apartment	$	245.7	12.5	%	$	130.6	6.9	%
Industrial	591.5		30.0		574.1		30.5
Office	701.1		35.6		764.7		40.6
Retail	410.6		20.8		392.3		20.8
Other	21.5		1.1		21.9		1.2
Total	$	1,970.4	100.0	%	$	1,883.6	100.0	%



Region
New England	$	73.6	3.7	%	$	97.6	5.2	%
Mid-Atlantic	113.7		5.8		128.8		6.9
East North Central	215.3		10.9		186.4		9.9
West North Central	173.6		8.8		162.6		8.6
South Atlantic	417.6		21.2		409.3		21.7
East South Central	97.9		5.0		79.1		4.2
West South Central	250.7		12.7		237.6		12.6
Mountain	209.2		10.6		196.5		10.4
Pacific	418.8		21.3		385.7		20.5
Total	$	1,970.4	100.0	%	$	1,883.6	100.0	%

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


•	Loan-to-value ratio


•	Debt service coverage ratio based on current operating income


•	Property location, including regional economics, trends and demographics


•	Age, condition, and construction quality of property


•	Current and historical occupancy of property


•	Lease terms relative to market


•	Tenant size and financial strength


•	Borrower's financial strength


•	Borrower's equity in transaction


•	Additional collateral, if any

Although all available and applicable factors are considered in our analysis, loan-to-value and debt service coverage ratios are the most critical factors in determining whether we will initially issue the loan and also in assigning values and determining impairment. We assign an overall rating to each loan using an internal rating scale of Aa (highest quality) to B (lowest quality). We review and adjust, as needed, our internal credit quality ratings on an annual basis. This review process is performed more frequently for mortgage loans deemed to have a higher risk of delinquency.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 4 - Investments - Continued

Mortgage loans, sorted by the applicable credit quality indicators, are as follows:



	September 30 2016		December 31 2015
	(in millions of dollars)
Internal Rating
Aa	$	0.8	$	1.1
A	488.3		586.6
Baa	1,445.1		1,285.8
Ba	36.2		10.1
Total	$	1,970.4	$	1,883.6



Loan-to-Value Ratio
<= 65%	$	889.1	$	937.2
> 65% <= 75%	962.6		842.5
> 75% <= 85%	73.1		88.4
> 85%	45.6		15.5
Total	$	1,970.4	$	1,883.6

During the third quarter of 2016 we foreclosed on a mortgage loan with a carrying value of $5.4 million . We did not recognize a loss at foreclosure as the value of the underlying property exceeded the carrying value of the loan. There have been no other troubled debt restructurings during 2016 and there were no troubled debt restructurings during the three and nine months ended September 30, 2015. At September 30, 2016 and December 31, 2015 , we held no mortgage loans that were greater than 90 days past due regarding principal and/or interest payments.

There have been no changes to our accounting policies or methodology from the prior period regarding estimating the allowance for credit losses on our mortgage loans. As of September 30, 2016 and December 31, 2015, we had no allowance for credit losses, and there has been no activity in the allowance for credit losses during 2016. The balance in our allowance for credit losses was $1.5 million at the beginning of 2015. During the second quarter of 2015, we increased the provision by $0.5 million , resulting in a total allowance for credit losses of $2.0 million . The loan was repaid during the three months ended September 30, 2015, with a corresponding release of the $2.0 million allowance for credit losses and an additional de minimis loss recognized at repayment.

Our average investment in impaired mortgage loans was $3.6 million and $3.0 million for the three and nine months ended September 30, 2016 , respectively, and $8.4 million and $11.5 million for the three and nine months ended September 30, 2015 , respectively. We did not recognize any interest income on mortgage loans subsequent to impairment during the three and nine months ended September 30, 2016 , respectively, and interest income recognized on mortgage loans subsequent to impairment was $0.2 million and $0.6 million for the three and nine months ended September 30, 2015 , respectively.

At September 30, 2016 , we had commitments of $38.0 million to fund certain commercial mortgage loans, the amount of which may or may not be funded.

Transfers of Financial Assets

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

Our investment policy also permits us to lend fixed maturity securities to unaffiliated financial institutions in short-term securities lending agreements. These agreements increase our investment income with minimal risk. Our securities lending policy requires that a minimum of 102 percent of the fair value of the securities loaned be maintained as collateral. We may

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 4 - Investments - Continued

receive cash and/or securities as collateral under these agreements. Cash received as collateral is typically reinvested in short-term investments. If securities are received as collateral, we are not permitted to sell or re-post them.

As of September 30, 2016 , the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $210.0 million , for which we received collateral in the form of cash and securities of $56.6 million and $161.3 million , respectively. As of December 31, 2015 , the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $181.6 million , for which we received collateral in the form of cash and securities of $29.0 million and $159.3 million , respectively. We had no outstanding repurchase agreements at September 30, 2016 or December 31, 2015 .

The remaining contractual maturities of our securities lending agreements disaggregated by class of collateral pledged are as follows:



	September 30, 2016		December 31, 2015
	Overnight and Continuous
	(in millions of dollars)
United States Government and Government Agencies and Authorities	$	9.8	$	1.2
Public Utilities	4.0		4.0
All Other Corporate Bonds	42.8		23.8
Total Borrowings	56.6		29.0
Gross Amount of Recognized Liability for Securities Lending Transactions	56.6		29.0
Amounts Related to Agreements Not Included in Offsetting Disclosure Contained Herein	$	—	$	—

Certain of our U.S. insurance subsidiaries are members of regional FHLBs. Membership, which requires that we purchase a minimum amount of FHLB common stock on which we receive dividends, provides access to low-cost funding. As of September 30, 2016 and December 31, 2015 , we owned $31.6 million and $30.9 million of FHLB common stock, respectively. Advances from the regional FHLBs for the purpose of purchasing fixed maturity securities totaled $349.5 million and $350.0 million as of September 30, 2016 and December 31, 2015, respectively. As of September 30, 2016 , the carrying value of fixed maturity securities and commercial mortgage loans posted as collateral to the regional FHLBs was $329.2 million and $81.1 million , respectively. As of December 31, 2015 , the carrying value of fixed maturity securities and commercial mortgage loans posted as collateral to the regional FHLBs was $317.2 million and $96.0 million , respectively. Additional common stock purchases may be required, based on the amount of funds we borrow from the FHLBs.

Offsetting of Financial Instruments

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 4 - Investments - Continued

Shown below are our financial instruments that either meet the accounting requirements that allow them to be offset in our balance sheets or that are subject to an enforceable master netting arrangement or similar agreement. Our accounting policy is to not offset these financial instruments in our balance sheets. Net amounts disclosed below have been reduced by the amount of collateral pledged to or received from our counterparties.



	September 30, 2016
	Gross Amount						Gross Amount Not
	of Recognized		Gross Amount		Net Amount		Offset in Balance Sheet
	Financial		Offset in		Presented in		Financial			Cash			Net
	Instruments		Balance Sheet		Balance Sheet		Instruments			Collateral			Amount
	(in millions of dollars)
Financial Assets:
Derivatives	$	37.1	$	—	$	37.1	$	(8.2	)	$	(28.8	)	$	0.1
Securities Lending	210.0		—		210.0		(153.4		)	(56.6		)	—
Total	$	247.1	$	—	$	247.1	$	(161.6	)	$	(85.4	)	$	0.1

Financial Liabilities:
Derivatives	$	55.7	$	—	$	55.7	$	(41.5	)	$	—		$	14.2
Securities Lending	56.6		—		56.6		(56.6		)	—			—
Total	$	112.3	$	—	$	112.3	$	(98.1	)	$	—		$	14.2



	December 31, 2015
	Gross Amount						Gross Amount Not
	of Recognized		Gross Amount		Net Amount		Offset in Balance Sheet
	Financial		Offset in		Presented in		Financial			Cash			Net
	Instruments		Balance Sheet		Balance Sheet		Instruments			Collateral			Amount
	(in millions of dollars)
Financial Assets:
Derivatives	$	49.8	$	—	$	49.8	$	(12.8	)	$	(36.4	)	$	0.6
Securities Lending	181.6		—		181.6		(152.6		)	(29.0		)	—
Total	$	231.4	$	—	$	231.4	$	(165.4	)	$	(65.4	)	$	0.6

Financial Liabilities:
Derivatives	$	50.2	$	—	$	50.2	$	(35.6	)	$	—		$	14.6
Securities Lending	29.0		—		29.0		(29.0		)	—			—
Total	$	79.2	$	—	$	79.2	$	(64.6	)	$	—		$	14.6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 4 - Investments - Continued

Net Investment Income

Net investment income reported in our consolidated statements of income is as follows:



	Three Months Ended September 30					Nine Months Ended September 30
	2016			2015		2016		2015
	(in millions of dollars)
Fixed Maturity Securities	$	573.2		$	573.3	$	1,716.6	$	1,732.4
Derivatives	12.6			11.3		36.9		33.7
Mortgage Loans	30.6			26.8		87.6		82.5
Policy Loans	4.4			4.2		12.8		12.4
Other Long-term Investments	(0.9		)	7.1		15.4		15.9
Short-term Investments	2.4			0.7		6.0		2.4
Gross Investment Income	622.3			623.4		1,875.3		1,879.3
Less Investment Expenses	7.4			7.7		23.5		23.5
Less Investment Income on Participation Fund Account Assets	3.5			3.6		10.7		11.0
Net Investment Income	$	611.4		$	612.1	$	1,841.1	$	1,844.8

Realized Investment Gain and Loss

Realized investment gains and losses are as follows:



	Three Months Ended September 30						Nine Months Ended September 30
	2016			2015			2016			2015
	(in millions of dollars)
Fixed Maturity Securities
Gross Gains on Sales	$	1.6		$	12.4		$	29.4		$	19.8
Gross Losses on Sales	(0.4		)	(4.4		)	(14.0		)	(12.0		)
Other-Than-Temporary Impairment Loss	—			(9.4		)	(30.5		)	(22.0		)
Mortgage Loans and Other Invested Assets
Gross Gains on Sales	0.2			5.1			4.0			14.0
Gross Losses on Sales	—			—			(0.7		)	—
Impairment Loss	—			(1.1		)	(3.1		)	(4.8		)
Embedded Derivative in Modified Coinsurance Arrangement	9.7			(27.3		)	14.3			(33.2		)
All Other Derivatives	0.1			(1.0		)	(3.5		)	(1.3		)
Foreign Currency Transactions	(0.2		)	(0.9		)	(0.1		)	(1.6		)
Net Realized Investment Gain (Loss)	$	11.0		$	(26.6	)	$	(4.2	)	$	(41.1	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 5 - Derivative Financial Instruments

Purpose of Derivatives

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

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

•

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


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

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

•

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

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

•

Foreign currency interest rate swaps have historically been used to hedge the currency risk of certain foreign currency-denominated fixed maturity securities owned for portfolio diversification and to hedge the currency risk associated with certain of the principal and interest payments of the U.S. dollar-denominated debt issued by one of our U.K. subsidiaries. For hedges of fixed maturity securities, we agree to pay, at specified intervals, fixed rate foreign currency-denominated principal and interest payments in exchange for fixed rate payments in the functional currency of the operating segment. For hedges of debt issued, we paid, at specified intervals, fixed rate foreign currency-denominated principal and interest payments to the counterparty in exchange for fixed rate U.S. dollar-denominated principal and interest payments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 5 - Derivative Financial Instruments - Continued

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

•

Foreign currency interest rate swaps previously designated as hedges were used to hedge the currency risk of certain foreign currency-denominated fixed maturity securities owned for portfolio diversification. We agree to pay, at specified intervals, fixed rate foreign currency-denominated principal and interest payments in exchange for fixed rate payments in the functional currency of the operating segment. We hold offsetting swaps wherein we agree to pay fixed rate principal and interest payments in the functional currency of the operating segment in exchange for fixed rate foreign currency-denominated payments.

•

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


•	Interest rate swap is used to effectively convert certain of our floating rate, long-term debt into fixed rate long-term debt. Under this swap agreement, we receive a variable rate of interest and pay a fixed rate of interest.

Derivative Risks

The basic types of risks associated with derivatives are market risk (that the value of the derivative will be adversely impacted by changes in the market, primarily the change in interest and exchange rates) and credit risk (that the counterparty will not perform according to the terms of the contract). The market risk of the derivatives should generally offset the market risk associated with the hedged financial instrument or liability. To help limit the credit exposure of the derivatives, we enter into master netting agreements with our counterparties whereby contracts in a gain position can be offset against contracts in a loss position. We also typically enter into bilateral, cross-collateralization agreements with our counterparties to help limit the credit exposure of the derivatives. These agreements require the counterparty in a loss position to submit acceptable collateral with the other counterparty in the event the net loss position meets or exceeds an agreed upon amount. Our current credit exposure on derivatives, which is limited to the value of those contracts in a net gain position, including accrued interest receivable less collateral held, was $0.1 million at September 30, 2016 . We held $34.0 million and $36.4 million cash collateral from our counterparties at September 30, 2016 and December 31, 2015 , respectively. We post either fixed maturity securities or cash as collateral to our counterparties. The carrying value of fixed maturity securities posted as collateral to our counterparties was $39.0 million and $27.3 million at September 30, 2016 and December 31, 2015 , respectively. We had no cash posted as collateral to our counterparties at September 30, 2016 or December 31, 2015 . See Note 4 for further discussion of our master netting agreements.

The majority of our derivative instruments contain provisions that require us to maintain specified issuer credit ratings and financial strength ratings. Should our ratings fall below these specified levels, we would be in violation of the provisions, and our derivatives counterparties could terminate our contracts and request immediate payment. The aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a liability position was $55.7 million and $50.2 million at September 30, 2016 and December 31, 2015 , respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 5 - Derivative Financial Instruments - Continued

Derivative Transactions

The table below summarizes, by notional amounts, the activity for each category of derivatives. The notional amounts represent the basis upon which our counterparty pay and receive amounts are calculated.



	Swaps
	Receive Variable/Pay Fixed		Receive Fixed/Pay Fixed		Receive Fixed/Pay Variable		Credit Default		Forwards		Total
	(in millions of dollars)
Balance at June 30, 2015	$	150.0	$	816.7	$	600.0	$	72.0	$	—	$	1,638.7
Additions	—		—		—		—		67.0		67.0
Terminations	—		3.5		—		2.0		—		5.5
Balance at September 30, 2015	$	150.0	$	813.2	$	600.0	$	70.0	$	67.0	$	1,700.2

Balance at December 31, 2014	$	150.0	$	840.4	$	600.0	$	97.0	$	—	$	1,687.4
Additions	—		—		—		2.0		94.0		96.0
Terminations	—		27.2		—		29.0		27.0		83.2
Balance at September 30, 2015	$	150.0	$	813.2	$	600.0	$	70.0	$	67.0	$	1,700.2

Balance at June 30, 2016	$	126.0	$	644.5	$	600.0	$	70.0	$	—	$	1,440.5
Additions	3.5		—		—		—		—		3.5
Terminations	—		7.1		350.0		—		—		357.1
Balance at September 30, 2016	$	129.5	$	637.4	$	250.0	$	70.0	$	—	$	1,086.9

Balance at December 31, 2015	$	150.0	$	650.3	$	600.0	$	70.0	$	—	$	1,470.3
Additions	3.5		—		—		—		—		3.5
Terminations	24.0		12.9		350.0		—		—		386.9
Balance at September 30, 2016	$	129.5	$	637.4	$	250.0	$	70.0	$	—	$	1,086.9

Cash Flow Hedges

As of September 30, 2016 and December 31, 2015 , we had $415.0 million and $427.9 million , respectively, notional amount of receive fixed, pay fixed, open current and forward foreign currency interest rate swaps to hedge fixed income foreign currency-denominated securities.

For the three and nine months ended September 30, 2016 and 2015 , there was no material ineffectiveness related to our cash flow hedges, and no component of the derivative instruments' gain or loss was excluded from the assessment of hedge effectiveness.

As of September 30, 2016 , we expect to amortize approximately $56.8 million of net deferred gains on derivative instruments during the next twelve months. This amount will be reclassified from accumulated other comprehensive income into earnings and reported on the same income statement line item as the hedged item. The income statement line items that will be affected by this amortization are net investment income and interest and debt expense. Additional amounts that may be reclassified from accumulated other comprehensive income into earnings to offset the earnings impact of foreign currency translation of hedged items are not estimable.

As of September 30, 2016 , we are hedging the variability of future cash flows associated with forecasted transactions through the year 2038.

Fair Value Hedges

As of September 30, 2016 and December 31, 2015 , we had $126.0 million and $150.0 million , respectively, notional amount of receive variable, pay fixed interest rate swaps to hedge the changes in fair value of certain fixed rate securities held. These

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 5 - Derivative Financial Instruments - Continued

swaps effectively convert the associated fixed rate securities into floating rate securities, which are used to fund our floating rate long-term debt. The change in fair value of the hedged fixed maturity securities attributable to the hedged benchmark interest rate resulted in a loss of $1.7 million and $4.6 million for the three and nine months ended September 30, 2016 , respectively, and $0.7 million and $2.8 million for the three and nine months ended September 30, 2015 , respectively, with an offsetting gain on the related interest rate swaps. During the first quarter of 2016, we terminated $24.0 million notional amount of receive variable, pay fixed interest rate swaps in connection with the sale of the hedged securities and recorded a loss on the swap terminations of $1.2 million in our consolidated statements of income as a component of net realized investment gains and losses.

As of September 30, 2016 and December 31, 2015 , we had $250.0 million and $600.0 million , respectively, notional amount of receive fixed, pay variable interest rate swaps to hedge the changes in the fair value of certain fixed rate long-term debt. These swaps effectively convert the associated fixed rate long-term debt into floating rate debt and provide for a better matching of interest rates with our short-term investments, which have frequent interest rate resets similar to a floating rate security. The change in fair value of the hedged debt attributable to the hedged benchmark interest rate resulted in a gain (loss) of $3.1 million and $(3.5) million for the three and nine months ended September 30, 2016 , respectively, and $(4.7) million and $(5.1) million for the three and nine months ended September 30, 2015 , respectively, with an offsetting gain or loss on the related interest rate swaps. During the third quarter of 2016, $350.0 million notional amount of receive fixed, pay variable interest rate swaps matured in conjunction with the maturity of the $350.0 million hedged fixed rate debt. See Note 11 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further information.

For the three and nine months ended September 30, 2016 , and 2015 , there was no material ineffectiveness related to our fair value hedges, and no component of the derivative instruments' gain or loss was excluded from the assessment of hedge effectiveness. There were no instances wherein we discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge.

Derivatives not Designated as Hedging Instruments

As of September 30, 2016 and December 31, 2015 , we held $222.4 million notional amount of receive fixed, pay fixed, foreign currency interest rate swaps. These derivatives were not designated as hedges, and as such, changes in fair value related to these derivatives will be reported in earnings as a component of net realized investment gain or loss.

As of September 30, 2016 and December 31, 2015 , we held $70.0 million notional amount of single name credit default swaps. We entered into these swaps in order to mitigate the credit risk associated with specific securities owned.

As of September 30, 2016, we held $3.5 million notional amount of a receive variable, pay fixed interest rate swap acquired through our purchase of Starmount in the third quarter of 2016. This swap effectively converts Starmount's floating rate long-term debt of $3.5 million into fixed rate debt. See Note 7 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further information.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 5 - Derivative Financial Instruments - Continued

Locations and Amounts of Derivative Financial Instruments

The following tables summarize the location and fair values of derivative financial instruments, as reported in our consolidated balance sheets.



	September 30, 2016
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(in millions of dollars)
Designated as Hedging Instruments
Interest Rate Swaps	Other L-T Investments	$	3.2	Other Liabilities	$	5.1
Foreign Exchange Contracts	Other L-T Investments	33.9		Other Liabilities	15.9
Total		$	37.1		$	21.0

Not Designated as Hedging Instruments
Credit Default Swaps				Other Liabilities	$	0.4
Interest Rate Swaps				Other Liabilities	1.0
Foreign Exchange Contracts				Other Liabilities	33.3
Embedded Derivative in Modified Coinsurance Arrangement				Other Liabilities	73.3
Total					$	108.0



	December 31, 2015
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(in millions of dollars)
Designated as Hedging Instruments
Interest Rate Swaps	Other L-T Investments	$	2.4	Other Liabilities	$	12.3
Foreign Exchange Contracts	Other L-T Investments	47.4		Other Liabilities	6.0
Total		$	49.8		$	18.3

Not Designated as Hedging Instruments
Credit Default Swaps				Other Liabilities	$	0.3
Foreign Exchange Contracts				Other Liabilities	31.6
Embedded Derivative in Modified Coinsurance Arrangement				Other Liabilities	87.6
Total					$	119.5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 5 - Derivative Financial Instruments - Continued

The following table summarizes the location of gains and losses on the effective portion of derivative financial instruments designated as cash flow hedging instruments, as reported in our consolidated statements of income and consolidated statements of comprehensive income.



		Three Months Ended September 30						Nine Months Ended September 30
		2016			2015			2016			2015
		(in millions of dollars)
Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives
Forwards		$	—		$	(0.8	)	$	—		$	(0.8	)
Foreign Exchange Contracts		0.3			33.5			(24.2		)	59.9
	Total	$	0.3		$	32.7		$	(24.2	)	$	59.1

Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Net Investment Income
	Interest Rate Swaps and Forwards	$	13.8		$	12.8		$	40.6		$	38.3
	Foreign Exchange Contracts	(0.3		)	(0.3		)	(0.8		)	(1.3		)
Net Realized Investment Gain (Loss)
	Interest Rate Swaps	—			0.3			3.2			0.6
	Foreign Exchange Contracts	—			(0.2		)	(0.5		)	—
Interest and Debt Expense
	Interest Rate Swaps	(0.5		)	(0.5		)	(1.4		)	(1.4		)
	Total	$	13.0		$	12.1		$	41.1		$	36.2

The following table summarizes the location of gains and losses on our derivatives not designated as hedging instruments, as reported in our consolidated statements of income.



		Three Months Ended September 30						Nine Months Ended September 30
		2016			2015			2016			2015
		(in millions of dollars)
Net Realized Investment Gain (Loss)
	Credit Default Swaps	$	(0.3	)	$	0.1		$	(0.7	)	$	(0.5	)
	Interest Rate Swaps	0.1			—			0.1			—
	Foreign Exchange Contracts	0.3			(1.1		)	(1.7		)	(0.8		)
	Embedded Derivative in Modified Coinsurance Arrangement	9.7			(27.3		)	14.3			(33.2		)
	Total	$	9.8		$	(28.3	)	$	12.0		$	(34.5	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 6 - Accumulated Other Comprehensive Income

Components of our accumulated other comprehensive income, after tax, and related changes are as follows:



		Net Unrealized Gain on Securities			Net Gain on Cash Flow Hedges			Foreign Currency Translation Adjustment			Unrecognized Pension and Postretirement Benefit Costs			Total
		(in millions of dollars)
Balance at June 30, 2016		$	661.1		$	343.6		$	(279.4	)	$	(385.5	)	$	339.8
	Other Comprehensive Income (Loss) Before Reclassifications	143.0			0.1			(25.8		)	0.4			117.7
	Amounts Reclassified from Accumulated Other Comprehensive Income or Loss	(0.9		)	(8.5		)	—			2.6			(6.8		)
	Net Other Comprehensive Income (Loss)	142.1			(8.4		)	(25.8		)	3.0			110.9
Balance at September 30, 2016		$	803.2		$	335.2		$	(305.2	)	$	(382.5	)	$	450.7

Balance at June 30, 2015		$	112.1		$	391.7		$	(102.5	)	$	(397.9	)	$	3.4
	Other Comprehensive Income (Loss) Before Reclassifications	47.0			21.3			(44.1		)	0.9			25.1
	Amounts Reclassified from Accumulated Other Comprehensive Income or Loss	(0.5		)	(7.9		)	—			1.9			(6.5		)
	Net Other Comprehensive Income (Loss)	46.5			13.4			(44.1		)	2.8			18.6
Balance at September 30, 2015		$	158.6		$	405.1		$	(146.6	)	$	(395.1	)	$	22.0

Balance at December 31, 2015		$	204.3		$	378.0		$	(173.6	)	$	(392.6	)	$	16.1
	Other Comprehensive Income (Loss) Before Reclassifications	588.9			(16.0		)	(131.6		)	2.4			443.7
	Amounts Reclassified from Accumulated Other Comprehensive Income or Loss	10.0			(26.8		)	—			7.7			(9.1		)
	Net Other Comprehensive Income (Loss)	598.9			(42.8		)	(131.6		)	10.1			434.6
Balance at September 30, 2016		$	803.2		$	335.2		$	(305.2	)	$	(382.5	)	$	450.7

Balance at December 31, 2014		$	290.3		$	391.0		$	(113.4	)	$	(401.5	)	$	166.4
	Other Comprehensive Income (Loss) Before Reclassifications	(137.6		)	37.9			(33.2		)	0.7			(132.2		)
	Amounts Reclassified from Accumulated Other Comprehensive Income or Loss	5.9			(23.8		)	—			5.7			(12.2		)
	Net Other Comprehensive Income (Loss)	(131.7		)	14.1			(33.2		)	6.4			(144.4		)
Balance at September 30, 2015		$	158.6		$	405.1		$	(146.6	)	$	(395.1	)	$	22.0

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



										Change at September 30, 2016
	September 30			June 30			December 31			Three Months			Nine Months
	2016			2016			2015			Ended			Ended
	(in millions of dollars)
Fixed Maturity Securities	$	6,690.4		$	6,299.5		$	3,695.7		$	390.9		$	2,994.7
Other Investments	(21.1		)	(21.3		)	(33.7		)	0.2			12.6
Deferred Acquisition Costs	(56.1		)	(52.5		)	(29.4		)	(3.6		)	(26.7		)
Reserves for Future Policy and Contract Benefits	(5,775.5		)	(5,578.6		)	(3,578.4		)	(196.9		)	(2,197.1		)
Reinsurance Recoverable	379.7			366.0			263.2			13.7			116.5
Income Tax	(414.2		)	(352.0		)	(113.1		)	(62.2		)	(301.1		)
Total	$	803.2		$	661.1		$	204.3		$	142.1		$	598.9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 6 - Accumulated Other Comprehensive Income - Continued



										Change at September 30, 2015
	September 30			June 30			December 31			Three Months			Nine Months
	2015			2015			2014			Ended			Ended
	(in millions of dollars)
Fixed Maturity Securities	$	4,663.4		$	4,901.2		$	6,261.5		$	(237.8	)	$	(1,598.1	)
Other Investments	(35.1		)	(14.8		)	13.9			(20.3		)	(49.0		)
Deferred Acquisition Costs	(40.0		)	(41.8		)	(50.8		)	1.8			10.8
Reserves for Future Policy and Contract Benefits	(4,649.7		)	(4,981.6		)	(6,150.3		)	331.9			1,500.6
Reinsurance Recoverable	308.1			312.9			365.0			(4.8		)	(56.9		)
Income Tax	(88.1		)	(63.8		)	(149.0		)	(24.3		)	60.9
Total	$	158.6		$	112.1		$	290.3		$	46.5		$	(131.7	)

Amounts reclassified from accumulated other comprehensive income or loss were recognized in our consolidated statements of income as follows:



			Three Months Ended September 30						Nine Months Ended September 30
			2016			2015			2016			2015
			(in millions of dollars)
Net Unrealized Gain on Securities
	Net Realized Investment Gain (Loss)
		Net Gain on Sales of Securities and Other Invested Assets	$	1.1		$	10.2		$	14.8		$	12.4
		Other-Than-Temporary Impairment Loss	—			(9.4		)	(30.5		)	(22.0		)
			1.1			0.8			(15.7		)	(9.6		)
	Income Tax Expense (Benefit)		0.2			0.3			(5.7		)	(3.7		)
	Total		$	0.9		$	0.5		$	(10.0	)	$	(5.9	)

Net Gain on Cash Flow Hedges
	Net Investment Income
		Gain on Interest Rate Swaps and Forwards	$	13.8		$	12.8		$	40.6		$	38.3
		Loss on Foreign Exchange Contracts	(0.3		)	(0.3		)	(0.8		)	(1.3		)
	Net Realized Investment Gain (Loss)
		Gain on Interest Rate Swaps	—			0.3			3.2			0.6
		Loss on Foreign Exchange Contracts	—			(0.2		)	(0.5		)	—
	Interest and Debt Expense
		Loss on Interest Rate Swaps	(0.5		)	(0.5		)	(1.4		)	(1.4		)
			13.0			12.1			41.1			36.2
	Income Tax Expense		4.5			4.2			14.3			12.4
	Total		$	8.5		$	7.9		$	26.8		$	23.8

Unrecognized Pension and Postretirement Benefit Costs
	Other Expenses
		Amortization of Net Actuarial Loss	$	(4.1	)	$	(3.0	)	$	(12.2	)	$	(8.9	)
		Amortization of Prior Service Credit	—			—			0.2			0.1
			(4.1		)	(3.0		)	(12.0		)	(8.8		)
	Income Tax Benefit		(1.5		)	(1.1		)	(4.3		)	(3.1		)
	Total		$	(2.6	)	$	(1.9	)	$	(7.7	)	$	(5.7	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 7 - Segment Information

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

Business Acquired

On August 1, 2016 , we acquired 100 percent of the shares and voting interests in Starmount, for an initial cash purchase price of $140.1 million plus contingent cash consideration of $10.0 million to be paid in two increments of $5.0 million each, at 18 and 24 months from the date of acquisition upon satisfaction of certain conditions. Starmount Life Insurance Company is an independent provider of dental and vision insurance in the U.S. workplace, and AlwaysCare Benefits is a nationally licensed, third-party administrator. The acquisition of Starmount will broaden our employee benefit offerings in the U.S. Starmount's dental and vision products and new dental and vision products to be marketed by Unum US are reported in our Unum US segment within our supplemental and voluntary product lines. Colonial Life dental and vision products are expected to be introduced in 2018.

Starmount's revenues totaled $129.9 million in 2015. Total assets were valued at approximately $93.0 million as of the acquisition date and were primarily comprised of bonds, cash, accounts receivable, and intangible assets attributable to the value of business acquired and the value of existing state licenses. Total liabilities were valued at approximately $56.0 million as of the acquisition date and were primarily comprised of outstanding claim liabilities and reserves for future claims. The purchase price exceeded the fair value of the identifiable net assets by approximately $111.0 million and has been identified as goodwill, primarily attributable to the value of adding dental and vision to our current employee benefit offerings. Goodwill was allocated to the reporting units expected to benefit from the acquisition. Approximately 75 percent was allocated to our Unum US supplemental and voluntary product lines and approximately 25 percent to Colonial Life. The goodwill is not deductible for income tax purposes except upon disposition of the acquired entity. This acquisition, the results of which are included in our consolidated financial statements for the period subsequent to the date of acquisition, is not expected to have a material impact on revenue or results of operations for 2016.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 7 - Segment Information - Continued

Segment information is as follows:



	Three Months Ended September 30				Nine Months Ended September 30
	2016		2015		2016		2015
	(in millions of dollars)
Premium Income
Unum US
Group Disability
Group Long-term Disability	$	428.1	$	414.3	$	1,291.6	$	1,229.0
Group Short-term Disability	155.5		153.2		469.2		452.5
Group Life and Accidental Death & Dismemberment
Group Life	353.4		336.5		1,053.6		1,007.5
Accidental Death & Dismemberment	35.3		32.1		104.8		98.0
Supplemental and Voluntary
Individual Disability	125.6		119.6		374.4		355.9
Voluntary Benefits	197.1		186.1		602.1		565.5
Dental and Vision	20.0		—		20.0		—
	1,315.0		1,241.8		3,915.7		3,708.4
Unum UK
Group Long-term Disability	85.5		100.6		274.1		296.5
Group Life	24.9		29.7		80.9		90.6
Supplemental	16.9		14.3		52.4		38.7
	127.3		144.6		407.4		425.8
Colonial Life
Accident, Sickness, and Disability	207.7		196.5		619.2		591.1
Life	68.0		62.5		203.4		188.1
Cancer and Critical Illness	78.4		74.1		234.1		222.0
	354.1		333.1		1,056.7		1,001.2
Closed Block
Individual Disability	129.9		142.2		394.0		433.0
Long-term Care	161.4		158.6		482.0		475.0
All Other	1.7		0.5		2.7		1.2
	293.0		301.3		878.7		909.2
Total Premium Income	$	2,089.4	$	2,020.8	$	6,258.5	$	6,044.6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 7 - Segment Information - Continued



	Unum US		Unum UK		Colonial Life		Closed Block		Corporate			Total
	(in millions of dollars)
Three Months Ended September 30, 2016
Premium Income	$	1,315.0	$	127.3	$	354.1	$	293.0	$	—		$	2,089.4
Net Investment Income	207.3		28.5		36.1		334.1		5.4			611.4
Other Income	28.7		—		0.4		21.5		0.9			51.5
Operating Revenue	$	1,551.0	$	155.8	$	390.6	$	648.6	$	6.3		$	2,752.3

Operating Income (Loss)	$	231.0	$	28.2	$	79.0	$	28.6	$	(41.6	)	$	325.2

Three Months Ended September 30, 2015
Premium Income	$	1,241.8	$	144.6	$	333.1	$	301.3	$	—		$	2,020.8
Net Investment Income	214.3		28.0		35.9		327.5		6.4			612.1
Other Income	28.1		—		0.1		21.5		1.8			51.5
Operating Revenue	$	1,484.2	$	172.6	$	369.1	$	650.3	$	8.2		$	2,684.4

Operating Income (Loss)	$	218.7	$	32.7	$	76.3	$	27.7	$	(26.9	)	$	328.5



	Unum US		Unum UK		Colonial Life		Closed Block		Corporate			Total
	(in millions of dollars)
Nine Months Ended September 30, 2016
Premium Income	$	3,915.7	$	407.4	$	1,056.7	$	878.7	$	—		$	6,258.5
Net Investment Income	622.4		89.3		105.7		1,008.6		15.1			1,841.1
Other Income	85.6		0.2		1.0		65.3		2.5			154.6
Operating Revenue	$	4,623.7	$	496.9	$	1,163.4	$	1,952.6	$	17.6		$	8,254.2

Operating Income (Loss)	$	674.1	$	98.7	$	234.3	$	94.9	$	(109.1	)	$	992.9

Nine Months Ended September 30, 2015
Premium Income	$	3,708.4	$	425.8	$	1,001.2	$	909.2	$	—		$	6,044.6
Net Investment Income	645.0		90.1		109.8		979.6		20.3			1,844.8
Other Income	90.4		—		0.1		67.5		2.6			160.6
Operating Revenue	$	4,443.8	$	515.9	$	1,111.1	$	1,956.3	$	22.9		$	8,050.0

Operating Income (Loss)	$	635.8	$	103.6	$	231.5	$	91.0	$	(90.2	)	$	971.7



	September 30		December 31
	2016		2015
	(in millions of dollars)
Assets
Unum US	$	18,465.8	$	18,242.4
Unum UK	3,396.0		3,432.4
Colonial Life	3,940.5		3,776.8
Closed Block	34,821.9		33,000.9
Corporate	3,280.9		2,111.1
Total Assets	$	63,905.1	$	60,563.6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 7 - Segment Information - Continued

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

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

The amortization of prior period actuarial gains or losses, a component of the net periodic benefit cost for our pensions and other postretirement benefit plans, is driven by market performance as well as plan amendments and is not indicative of the operational results of our businesses. We believe that excluding the amortization of prior period gains or losses from operating income or loss provides investors with additional information for comparison and analysis of our operating results. Although we manage our non-operating retirement-related gains or losses separately from the operational performance of our business, these gains or losses impact the overall profitability of our company and have historically increased or decreased over time, depending on plan amendments and market conditions and the resulting impact on the actuarial gains or losses in our pensions and other postretirement benefit plans.

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



	Three Months Ended September 30						Nine Months Ended September 30
	2016			2015			2016			2015
	(in millions of dollars)
Total Revenue	$	2,763.3		$	2,657.8		$	8,250.0		$	8,008.9
Excluding:
Net Realized Investment Gain (Loss)	11.0			(26.6		)	(4.2		)	(41.1		)
Operating Revenue	$	2,752.3		$	2,684.4		$	8,254.2		$	8,050.0

Income Before Income Tax	$	332.1		$	298.9		$	976.5		$	921.7
Excluding:
Net Realized Investment Gain (Loss)	11.0			(26.6		)	(4.2		)	(41.1		)
Non-operating Retirement-related Loss	(4.1		)	(3.0		)	(12.2		)	(8.9		)
Operating Income	$	325.2		$	328.5		$	992.9		$	971.7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 8 - Employee Benefit Plans

Defined Benefit Pension and Other Postretirement Benefit (OPEB) Plans

We sponsor several defined benefit pension and OPEB plans for our employees, including non-qualified pension plans. We maintain a separate defined benefit plan for eligible employees in our U.K. operation. The U.S. defined benefit pension plans were closed to new entrants and amended to freeze participation and benefit accruals for existing participants effective December 31, 2013. The U.K. defined benefit plan was closed to new entrants effective December 31, 2002 and was amended to freeze participation for existing participants effective June 30, 2014.

Effective August 1, 2016, we amended the retiree medical benefits portion of our OPEB plan to transition a majority of participants to a private exchange for their health insurance coverage. Prior to the plan amendment, participants paid a subsidized premium for their health insurance coverage, but if they elect to continue participation in the plan they will now purchase coverage on a private exchange and will subsequently be reimbursed through a Health Reimbursement Account (HRA) for an amount equivalent to the subsidy that was previously provided. Participants who continue in the plan will receive a one-time subsidy to minimize the initial out-of-pocket cost of purchasing health insurance. The amendment did not materially change the benefit obligation of the plan.

The following table provides the components of the net periodic benefit cost (credit) for the defined benefit pension and OPEB plans.



	Three Months Ended September 30
	Pension Benefits
	U.S. Plans						U.K. Plan						OPEB
	2016			2015			2016			2015			2016			2015
	(in millions of dollars)
Service Cost	$	1.7		$	1.0		$	—		$	—		$	—		$	—
Interest Cost	21.3			20.5			1.7			2.0			1.8			1.7
Expected Return on Plan Assets	(25.7		)	(27.3		)	(2.5		)	(3.1		)	(0.2		)	(0.1		)
Amortization of:
Net Actuarial Loss	4.0			3.0			0.1			—			—			—
Total	$	1.3		$	(2.8	)	$	(0.7	)	$	(1.1	)	$	1.6		$	1.6



	Nine Months Ended September 30
	Pension Benefits
	U.S. Plans						U.K. Plan						OPEB
	2016			2015			2016			2015			2016			2015
	(in millions of dollars)
Service Cost	$	5.2		$	2.9		$	—		$	—		$	—		$	—
Interest Cost	63.9			61.6			5.4			5.9			5.4			5.3
Expected Return on Plan Assets	(77.1		)	(81.7		)	(7.9		)	(9.3		)	(0.5		)	(0.4		)
Amortization of:
Net Actuarial Loss	12.1			8.7			0.1			0.2			—			—
Prior Service Credit	(0.1		)	—			—			—			(0.1		)	(0.1		)
Plan Amendment	—			—			—			—			0.9			—
Total	$	4.0		$	(8.5	)	$	(2.4	)	$	(3.2	)	$	5.7		$	4.8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 9 - Stockholders' Equity and Earnings Per Common Share

Earnings Per Common Share

Net income per common share is determined as follows:



	Three Months Ended September 30				Nine Months Ended September 30
	2016		2015		2016		2015
	(in millions of dollars, except share data)
Numerator
Net Income	$	236.0	$	203.8	$	683.4	$	641.0

Denominator (000s)
Weighted Average Common Shares - Basic	233,752.0		245,400.0		236,744.3		248,372.9
Dilution for Assumed Exercises of Stock Options and Nonvested Stock Awards	461.5		924.4		399.5		855.2
Weighted Average Common Shares - Assuming Dilution	234,213.5		246,324.4		237,143.8		249,228.1

Net Income Per Common Share
Basic	$	1.01	$	0.83	$	2.89	$	2.58
Assuming Dilution	$	1.01	$	0.83	$	2.88	$	2.57

We use the treasury stock method to account for the effect of outstanding stock options, nonvested restricted stock units, and nonvested performance share units on the computation of diluted earnings per share. Under this method, these potential common shares will each have a dilutive effect, as individually measured, when the average market price of Unum Group common stock during the period exceeds the exercise price of the stock options and the grant price of the nonvested restricted stock units and the nonvested performance share units. The outstanding stock options have exercise prices ranging from $11.37 to $26.29 , the nonvested restricted stock units have grant prices ranging from $27.85 to $36.36 , and the nonvested performance share units have grant prices ranging from $27.85 to $34.08 .

In computing earnings per share assuming dilution, only potential common shares that are dilutive (those that reduce earnings per share) are included. For the three and nine months ended September 30, 2016 , there were approximately 0.5 million potential common shares that were excluded in the computation of diluted earnings per share because the impact would be antidilutive, based on then current market prices. There were approximately 0.1 million and 0.3 million potential common shares that were antidilutive for the three and nine months ended September 30, 2015, respectively.

Common Stock

During the second quarter of 2016, our board of directors authorized the repurchase of up to $750.0 million of Unum Group's outstanding common stock through November 26, 2017. This authorization replaced the previous authorization of $750.0 million that was scheduled to expire on November 21, 2016. The remaining repurchase amount under the new program was $598.6 million at September 30, 2016 .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 9 - Stockholders' Equity and Earnings Per Common Share - Continued

Common stock repurchases, which are accounted for using the cost method and classified as treasury stock until otherwise retired, were as follows:



	Three Months Ended September 30				Nine Months Ended September 30
	2016		2015		2016		2015
	(in millions)
Shares Repurchased	2.9		3.2		9.4		9.4
Cost of Shares Repurchased (1)	$	100.2	$	115.0	$	300.3	$	326.2

(1) Includes commissions of $0.1 million and $0.2 million for the three and nine month period ended September 30, 2016 , respectively, and $0.1 million for the nine months ended September 30, 2015. For the three month period ended September 30, 2015 there was a de minimis amount of commissions.

Preferred Stock

Unum Group has 25.0 million shares of preferred stock authorized with a par value of $0.10 per share. No preferred stock has been issued to date.

Note 10 - Commitments and Contingent Liabilities

Contingent Liabilities

We are a defendant in a number of litigation matters. In some of these matters, no specified amount is sought. In others, very large or indeterminate amounts, including punitive and treble damages, are asserted. There is a wide variation of pleading practice permitted in the United States courts with respect to requests for monetary damages, including some courts in which no specified amount is required and others which allow the plaintiff to state only that the amount sought is sufficient to invoke the jurisdiction of that court. Further, some jurisdictions permit plaintiffs to allege damages well in excess of reasonably possible verdicts. Based on our extensive experience and that of others in the industry with respect to litigating or resolving claims through settlement over an extended period of time, we believe that the monetary damages asserted in a lawsuit or claim bear little relation to the merits of the case, or the likely disposition value. Therefore, the specific monetary relief sought is not stated.

Unless indicated otherwise in the descriptions below, reserves have not been established for litigation and contingencies. An estimated loss is accrued when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Claims Handling Matters

We and our insurance subsidiaries, in the ordinary course of our business, are engaged in claim litigation where disputes arise as a result of a denial or termination of benefits. Most typically these lawsuits are filed on behalf of a single claimant or policyholder, and in some of these individual actions punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims. For our general claim litigation, we maintain reserves based on experience to satisfy judgments and settlements in the normal course. We expect that the ultimate liability, if any, with respect to general claim litigation, after consideration of the reserves maintained, will not be material to our consolidated financial condition. Nevertheless, given the inherent unpredictability of litigation, it is possible that an adverse outcome in certain claim litigation involving punitive damages could, from time to time, have a material adverse effect on our consolidated results of operations in a period, depending on the results of operations for the particular period.

From time to time class action allegations are pursued where the claimant or policyholder purports to represent a larger number of individuals who are similarly situated. Since each insurance claim is evaluated based on its own merits, there is rarely a single act or series of actions which can properly be addressed by a class action. Nevertheless, we monitor these cases closely and defend ourselves appropriately where these allegations are made.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 10 - Commitments and Contingent Liabilities - Continued

Miscellaneous Matters

Beginning in 2011, a number of state regulators began requiring insurers to cross-check specified insurance policies with the Social Security Administration’s Death Master File to identify potential matches. If a potential match was identified, insurers were requested to determine if benefits were due, locate beneficiaries, and make payments where appropriate. We initiated this process where requested, and in 2012 we began implementing this process in all states on a forward-looking basis. In addition to implementing this on a forward-looking basis, in 2013 we began an initiative to search for potential claims from previous years. During 2013, we completed our assessment of benefits which we estimate will be paid under this initiative, and as such, established additional reserves for payment of these benefits. Similar to other insurers, we are undergoing an examination by a third party acting on behalf of a number of state treasurers concerning our compliance with the unclaimed property laws of the participating states. We are cooperating fully with this examination, as well as with a Delaware Market Conduct examination involving the same issue. The legal and regulatory environment around unclaimed death benefits continues to evolve. It is possible that the current examination and/or similar investigations by other state jurisdictions may result in additional payments to beneficiaries, the payment of abandoned funds under state law, and/or administrative penalties, the total of which may be in excess of the reserves established.

In December 2012, State of West Virginia ex rel. John D. Perdue v. Provident Life and Accident Insurance Company and State of West Virginia ex rel. John D. Perdue v. Colonial Life & Accident Insurance Company were filed in the Circuit Court of Putnam County, West Virginia. These two separate complaints alleged violations of the West Virginia Uniform Unclaimed Property Act by failing to identify and report all unclaimed insurance policy proceeds due to be escheated to West Virginia. The complaints sought to examine company records and assess penalties and costs in an undetermined amount. In December 2013, the court dismissed both complaints, holding that the West Virginia Uniform Unclaimed Property Act does not require insurance companies to periodically search the Social Security Administrations' Death Master File or escheat unclaimed life insurance benefits until a claim has been submitted. In January 2014, the plaintiff appealed the dismissal of both complaints. In June 2015, the appellate court reinstated the case, holding that the West Virginia Uniform Unclaimed Property Act requires insurers to make reasonable efforts to determine whether their insureds are still living. The case was remanded to the trial court where we answered the complaints.

In May 2013, a purported class action complaint was filed in the Superior Court of California, County of Los Angeles. The plaintiff sought to represent a class of California insureds who were issued long-term care policies containing an inflation protection feature. The plaintiff alleged we incorrectly administered the inflation protection feature, resulting in an underpayment of benefits. The complaint made allegations against us for breach of contract, bad faith, fraud, violation of Business and Professions Code 17200, and injunctive relief. We removed the case to the United States District Court for the Central District of California, and plaintiff filed an amended complaint on behalf of a nationwide class of insureds who were issued long-term care policies containing an inflation protection feature. After we answered the complaint, the court permitted the plaintiff to file another amended complaint entitled Michael Don, Executor of The Estate of Ruben Don, Leroy Little, by and through his Guardian ad Litem Tamara Pelham, and Carolyn Little v. Unum Group, and Unum Life Insurance Company of America containing similar allegations. In April 2015, we again answered the complaint. The plaintiffs filed a motion seeking certification of five subclasses, and we filed our opposition. In February 2016, the plaintiffs filed a motion for preliminary approval of settlement for a class of certain insureds issued long-term care policies containing an inflation protection feature as well as certain insureds who requested copies of their long-term care policies. In July 2016, the court issued a final order approving the settlement and dismissing the case. We adjusted our previously accrued estimated loss contingency as a result of the final settlement, the amount of which was immaterial to our consolidated financial position and results of operations.

Summary

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Unum Group and Subsidiaries

September 30, 2016

Note 10 - Commitments and Contingent Liabilities - Continued

Given the complexity and scope of our litigation and regulatory matters, it is not possible to predict the ultimate outcome of all pending investigations or legal proceedings or provide reasonable estimates of potential losses, except if noted in connection with specific matters. It is possible that our results of operations or cash flows in a particular period could be materially affected by an ultimate unfavorable outcome of pending litigation or regulatory matters depending, in part, on our results of operations or cash flows for the particular period. We believe, however, that the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and rights to indemnification, should not have a material adverse effect on our financial position.

Note 11 - Other

Debt

In September 2016, our $350.0 million 7.125% senior unsecured notes matured.

In May 2016, we issued a total of $600.0 million aggregate principal amount of senior notes: (i) $350.0 million aggregate principal amount of senior notes due in 2021 with an annual coupon rate of 3.00% , and (ii) $250.0 million aggregate principal amount of senior notes due in 2042 with an annual coupon rate of 5.75% , pursuant to a reopening of the $250.0 million aggregate principal amount outstanding of our 5.75% senior notes due 2042 issued in 2012. Both issuances are callable at or above par and rank equally in the right of payment with all of our other unsecured and unsubordinated debt.

In March 2016, we amended the terms of our five-year $400.0 million credit facility, which was previously set to expire in 2018 , to extend through March 2021. At September 30, 2016, letters of credit totaling $2.1 million had been issued from the credit facility, but there were no borrowed amounts outstanding.

During the nine months ended September 30, 2016 , we made principal payments of $49.0 million on our senior secured non-recourse notes issued by Northwind Holdings, LLC.

Income Tax

During the third quarter of 2016, the U.K. government enacted an income tax rate reduction that will reduce the rate to 17 percent effective April 2020. Prior to this enactment, the rate had been scheduled to reduce to 18 percent in 2020. We are required to adjust deferred tax assets and liabilities through income on the date of enactment of a rate change. As a result, we recorded income tax benefits of $4.5 million during the third quarter of 2016.

We have a net operating loss carryforward for U.S. income tax of $1.0 million and an alternative minimum tax credit carryforward of $0.6 million resulting from our third quarter of 2016 acquisition of Starmount. The alternative minimum tax credit carryforward does not expire, and the net operating loss carryforward will expire between 2020 and 2035 .

We have net operating loss carryforwards for state income tax of $156.4 million which will expire between 2016 and 2036. During the third quarter of 2016, we recorded a deferred tax asset for future state income tax benefits of $16.0 million along with a corresponding valuation allowance of $14.1 million to reduce the deferred tax asset to the amount that is more likely than not to be realized. During 2015, we recorded a valuation allowance of $1.3 million related to unrealized tax losses on buildings which we own and occupy in the U.K., the amount of which is unchanged other than for foreign currency translation.

In the first quarter of 2015, we reached agreement with the Internal Revenue Service on all outstanding issues related to the examinations for 2009 and 2010 tax years and refund claims filed for tax credits related to tax years 2003 through 2012. As a result of this agreement, we reduced our reserve for uncertain tax positions in our consolidated balance sheet by $19.3 million . We also recognized in our consolidated statements of income a reduction in federal income taxes of $5.8 million .

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

Executive Summary

Unum Group, a Delaware general business corporation, and its insurance and non-insurance subsidiaries, which collectively with Unum Group we refer to as the Company, operate in the United States, the United Kingdom, and, to a limited extent, in certain other countries. The principal operating subsidiaries in the United States are Unum Life Insurance Company of America, Provident Life and Accident Insurance Company, The Paul Revere Life Insurance Company, and Colonial Life & Accident Insurance Company, and in the United Kingdom, Unum Limited. We are the largest provider of disability insurance products in the United States and the United Kingdom. We also provide a complementary portfolio of other insurance products, including employer- and employee-paid group benefits, life insurance, and other related services.

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

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

Specifically, we offer group, individual, and voluntary benefits, either as stand-alone products or combined with other coverages, that help employers of all sizes attract and retain a stronger workforce while protecting the incomes and livelihood of their employees. We believe employer-sponsored benefits represent the single most effective way to provide workers with access to the information and options they need to protect their financial stability. Working people and their families, particularly those at lower and middle incomes, are perhaps the most vulnerable in today's economy yet are often overlooked by many providers of financial services and products. For many of these people, employer-sponsored benefits are the primary defense against the potentially catastrophic fallout of death, illness, or injury.

We have established a corporate culture consistent with the social values our products provide. We are committed not only to meeting the needs of our customers who depend on us, but also to operating with integrity and being accountable for our actions. Our sound and consistent business practices, strong internal compliance program, and comprehensive risk management strategy enable us to operate efficiently as well as to identify and address potential areas of risk in our business. We have also applied these same values to our social responsibility efforts. Because we see important links between the obligations we have to all of our stakeholders, we place a strong emphasis on contributing to positive change in our communities.

This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto in Part I, Item 1 contained in this Form 10-Q and with the "Cautionary Statement Regarding Forward-Looking Statements" included below the Table of Contents, as well as the discussion, analysis, and consolidated financial statements and notes thereto in Part I, Items 1 and 1A, and Part II, Items 6, 7, 7A, and 8 of our annual report on Form 10-K for the year ended December 31, 2015 .

Operating Performance and Capital Management

For the third quarter of 2016 , we reported net income of $236.0 million , or $1.01 per diluted common share, compared to net income of $203.8 million , or $0.83 per diluted common share, in the same period of 2015 . For the first nine months of 2016 , net income was $ 683.4 million , or $2.88 per diluted common share, compared to net income of $ 641.0 million , or $2.57 per diluted common share, in the same period of 2015 . Included in these results are net realized investment gains and losses and non-operating retirement-related gains or losses. Adjusting for these items, after-tax operating income was $231.3 million , or $0.99 per diluted common share, in the third quarter of 2016 , compared to $223.0 million , or $0.91 per diluted common share, in the same period of 2015 . After-tax operating income was $693.8 million , or $2.93 per diluted common share, in the first nine months of 2016 , compared to $670.4 million , or $2.69 per diluted common share, in the same period of 2015 .

Our weighted average common shares outstanding, assuming dilution, equaled 234.2 million and 246.3 million for the third quarters of 2016 and 2015 , respectively, and 237.1 million and 249.2 million for the first nine months of 2016 and 2015 , respectively, reflecting our capital management strategy of returning capital to shareholders through repurchases of our common stock.

Our Unum US segment reported an increase in operating income of 5.6 percent and 6.0 percent in the third quarter and first nine months of 2016 , respectively, compared to the same periods of 2015 , with growth in premium income and overall favorable benefits experience, partially offset by lower net investment income. The benefit ratios for our Unum US segment for the third quarter and first nine months of 2016 were 69.4 percent and 69.3 percent , respectively, compared to 69.8 percent and 69.7 percent in the same periods of 2015 . Unum US sales decreased 11.5 percent and 4.5 percent in the third quarter and first nine months of 2016 , respectively, compared to the same periods of 2015 . Persistency was generally favorable relative to the prior year and is consistent with our expectations. During the third quarter of 2016, we acquired a provider of dental and vision insurance in the U.S. workplace. This acquisition did not have a material impact on our operating results or sales for the third quarter or first nine months of 2016. See "Acquisition of Business" included herein in this Item 2 as well as Note 7 of the "Notes to Consolidated Financial Statements" contained herein in Item 1.

Our Unum UK segment reported an increase in operating income, as measured in Unum UK's local currency, of 1.9 percent and 4.6 percent in the third quarter and first nine months of 2016 , respectively, compared to the same periods of 2015 , with growth in premium income and net investment income, partially offset by less favorable benefits experience. The benefit ratios for Unum UK were 71.8 percent and 70.0 percent in the third quarter and first nine months of 2016 , respectively, compared to 67.8 percent and 68.0 percent in the same periods of 2015 . Unum UK sales in local currency increased 15.6 percent and 17.2 percent in the third quarter and first nine months of 2016 , respectively, compared to the same periods of 2015 . Persistency was generally stable relative to the prior year and is consistent with our expectations.

Our Colonial Life segment reported an increase in operating income of 3.5 percent and 1.2 percent in the third quarter and first nine months of 2016 , respectively, compared to the same periods of 2015 , with growth in premium income, partially offset by less favorable overall benefits experience. Net investment income grew slightly in the third quarter of 2016 compared to the prior year third quarter but was lower for the first nine months of 2016 compared to the first nine months of 2015. The benefit ratios for Colonial Life were 51.6 percent and 51.2 percent in the third quarter and first nine months of 2016 , respectively, compared to 51.2 percent and 51.0 percent in the same periods of 2015 . Colonial Life sales increased 9.3 percent and 12.7 percent in the third quarter and first nine months of 2016 , respectively, compared to the same periods of 2015 . Persistency was generally stable relative to the prior year and is consistent with our expectations.

Our Closed Block segment reported an increase in operating income of 3.2 percent and 4.3 percent in the third quarter and first nine months of 2016 , respectively, compared to the same periods of 2015 . Operating results for this segment were driven primarily by growth in net investment income which was partially offset by less favorable benefits experience for both periods in 2016 relative to 2015 . Benefits experience year-to-date for individual disability remains within our range of expectations. Long-term care experienced volatility during the second and third quarters of 2016, with resulting interest adjusted loss ratios for the third quarter and first nine months of 2016 slightly higher than our range of expectations.

Although our profit margins continue to be pressured by the impact of the low interest rate environment on our net investment income yields, our invested asset quality remains strong. The net unrealized gain on our fixed maturity securities was $6.7 billion at September 30, 2016 compared to $3.7 billion at December 31, 2015 , with the increase due to a decrease in U.S. Treasury rates and credit spreads during the first nine months of 2016 . The earned book yield on our investment portfolio was 5.29 percent for the first nine months of 2016 compared to a yield of 5.40 percent for full year 2015 .

We believe our capital and financial positions are strong. At September 30, 2016 , the risk-based capital (RBC) ratio for our traditional U.S. insurance subsidiaries, calculated on a weighted average basis using the NAIC Company Action Level formula, was approximately 395 percent, in line with our expectations. During the first nine months of 2016 , we repurchased 9.4 million shares of Unum Group common stock under our share repurchase program, at a cost of $300 million . As of September 30, 2016 , Unum Group and our intermediate holding companies held fixed maturity securities, short-term investments, and cash of $598 million excluding amounts committed for subsidiary contributions.

Brexit Referendum

In June 2016, the U.K. voted to leave the European Union under the referendum commonly referred to as "Brexit." The nature and extent of the effects on interest rates, economic performance, and financial markets is still uncertain, and the financial market uncertainty may adversely affect both our U.S. and U.K. operations. While we may experience volatility in the fair values of our investments in U.K. and European Union-based issuers in the short term, we do not expect a material increase in other-than-temporary impairments or defaults, nor do we believe this volatility will impact our ability to hold these investments.

We may see some near-term dampening of growth in the U.K. due to the current disruption and uncertainty in the U.K. economy. The magnitude and longevity of potential negative economic impacts on our growth will depend on the agreements reached by the U.K. and European Union as a result of exit negotiations and the resulting response of the U.K. marketplace. There are currently no indications that capital requirements for our U.K. operations will change, but economic conditions may in the near term cause volatility in our solvency ratios. Our reported consolidated operating results will be unfavorably impacted by the weakening of the British pound sterling relative to the preceding periods, but this is a reporting impact and not an indication of profitability in our U.K. operations. Further discussion is contained herein in this Item 2.

Acquisition of Business

On August 1, 2016 , we acquired 100 percent of the shares and voting interests in H&J Capital, L.L.C., parent of Starmount Life Insurance Company and AlwaysCare Benefits (which collectively we refer to as Starmount), for an initial cash purchase price of $140.1 million plus contingent cash consideration of $10.0 million to be paid in two increments of $5.0 million each, at 18 and 24 months from the date of acquisition upon satisfaction of certain conditions. Starmount Life Insurance Company is an independent provider of dental and vision insurance in the U.S. workplace, and AlwaysCare Benefits is a nationally licensed, third-party administrator. The acquisition of Starmount will broaden our employee benefit offerings in the U.S. Starmount's dental and vision products and new dental and vision products to be marketed by Unum US are reported in our Unum US segment within our supplemental and voluntary product lines. Colonial Life dental and vision products are expected to be introduced in 2018. Starmount's revenues totaled $129.9 million in 2015. This acquisition is not expected to have a material impact on revenue, operating results, or sales during 2016 or alter our share repurchase and common stock dividend strategy. See Note 7 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further information.

Consolidated Company Outlook

We believe our disciplined approach to providing financial protection products at the workplace puts us in a position of strength as we seek to capitalize on the growing and largely unfilled need for our products and services. We believe the need for our products and services remains strong, and we intend to continue protecting our solid margins and returns through our pricing and risk actions. We continue to invest in our infrastructure and our employees, with a focus on quality and simplification of processes and offerings. Our strategy is centered on maintaining a strong customer focus while providing an innovative product portfolio of financial protection choices to deepen employee coverages, broaden employer relationships, and open new markets.

Our focus throughout 2016 has been on profitably growing our business, maintaining solid margins through disciplined pricing, underwriting and expense management, and effectively managing our capital. Although the low interest rate environment continues to place pressure on our profit margins and could unfavorably impact the adequacy of our reserves for some products, we continue to analyze and employ strategies that we believe will help us navigate this environment and allow us to maintain solid operating margins and significant financial flexibility to support the needs of our businesses, while also continuing to return capital to our shareholders. We have substantial leverage to rising interest rates and an improving economy which generates payroll growth and wage inflation. We believe that consistent operating results, combined with the implementation of strategic initiatives and the effective deployment of capital, will allow us to meet our long-term financial objectives.

Further discussion is contained in this Item 2 and in the "Notes to Consolidated Financial Statements" contained herein in Item 1.

Reconciliation of Non-GAAP and Other Financial Measures

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

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

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



	Three Months Ended September 30
	2016						2015
	(in millions)			per share *			(in millions)			per share *
Net Income	$	236.0		$	1.01		$	203.8		$	0.83
Excluding:
Net Realized Investment Gain (Loss) (net of tax expense (benefit) of $3.7; $(9.3))	7.3			0.03			(17.3		)	(0.07		)
Non-operating Retirement-related Loss (net of tax benefit of $1.5; $1.1)	(2.6		)	(0.01		)	(1.9		)	(0.01		)
After-tax Operating Income	$	231.3		$	0.99		$	223.0		$	0.91

	Nine Months Ended September 30
	2016						2015
	(in millions)			per share *			(in millions)			per share *
Net Income	$	683.4		$	2.88		$	641.0		$	2.57
Excluding:
Net Realized Investment Loss (net of tax benefit of $1.7; $17.5)	(2.5		)	(0.02		)	(23.6		)	(0.10		)
Non-operating Retirement-related Loss (net of tax benefit of $4.3; $3.1)	(7.9		)	(0.03		)	(5.8		)	(0.02		)
After-tax Operating Income	$	693.8		$	2.93		$	670.4		$	2.69

* Assuming Dilution

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



	Three Months Ended September 30						Nine Months Ended September 30
	2016			2015			2016			2015
	(in millions of dollars)
Total Revenue	$	2,763.3		$	2,657.8		$	8,250.0		$	8,008.9
Excluding:
Net Realized Investment Gain (Loss)	11.0			(26.6		)	(4.2		)	(41.1		)
Operating Revenue	$	2,752.3		$	2,684.4		$	8,254.2		$	8,050.0

Income Before Income Tax	$	332.1		$	298.9		$	976.5		$	921.7
Excluding:
Net Realized Investment Gain (Loss)	11.0			(26.6		)	(4.2		)	(41.1		)
Non-operating Retirement-related Loss	(4.1		)	(3.0		)	(12.2		)	(8.9		)
Operating Income	$	325.2		$	328.5		$	992.9		$	971.7

Critical Accounting Estimates

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

The accounting estimates deemed to be most critical to our financial position and results of operations are those related to reserves for policy and contract benefits, deferred acquisition costs, valuation of investments, pension and postretirement benefit plans, income taxes, and contingent liabilities. There have been no significant changes in our critical accounting estimates during the first nine months of 2016 .

For additional information, refer to our significant accounting policies in Note 1 of the "Notes to Consolidated Financial Statements" in Part II, Item 8 and "Critical Accounting Estimates" in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2015 .

Accounting Developments

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

Consolidated Operating Results



(in millions of dollars)
	Three Months Ended September 30								Nine Months Ended September 30
	2016			% Change		2015			2016			% Change		2015
Revenue
Premium Income	$	2,089.4		3.4	%	$	2,020.8		$	6,258.5		3.5	%	$	6,044.6
Net Investment Income	611.4			(0.1	)	612.1			1,841.1			(0.2	)	1,844.8
Net Realized Investment Gain (Loss)	11.0			N.M.		(26.6		)	(4.2		)	(89.8	)	(41.1		)
Other Income	51.5			—		51.5			154.6			(3.7	)	160.6
Total Revenue	2,763.3			4.0		2,657.8			8,250.0			3.0		8,008.9

Benefits and Expenses
Benefits and Change in Reserves for Future Benefits	1,742.6			3.1		1,690.9			5,205.9			3.1		5,047.6
Commissions	256.8			4.3		246.3			771.7			3.2		747.8
Interest and Debt Expense	45.2			18.6		38.1			126.2			10.8		113.9
Deferral of Acquisition Costs	(147.8		)	6.0		(139.4		)	(447.0		)	5.2		(425.1		)
Amortization of Deferred Acquisition Costs	118.8			1.5		117.0			377.2			0.5		375.4
Compensation Expense	210.1			2.0		205.9			620.6			(0.5	)	624.0
Other Expenses	205.5			2.7		200.1			618.9			2.5		603.6
Total Benefits and Expenses	2,431.2			3.1		2,358.9			7,273.5			2.6		7,087.2

Income Before Income Tax	332.1			11.1		298.9			976.5			5.9		921.7
Income Tax	96.1			1.1		95.1			293.1			4.4		280.7

Net Income	$	236.0		15.8		$	203.8		$	683.4		6.6		$	641.0

N.M. = not a meaningful percentage

The comparability of our financial results between years is affected by the fluctuation in the British pound sterling to dollar exchange rate. The functional currency of our U.K. operations is the British pound sterling. In periods when the pound weakens relative to the preceding period, translating pounds into dollars decreases current period results relative to the prior period. In periods when the pound strengthens, translating pounds into dollars increases current period results relative to the prior period. Our weighted average pound/dollar exchange rate was 1.312 and 1.550 for the three months ended September 30, 2016 and 2015 , respectively, and 1.396 and 1.533 for the nine months ended September 30, 2016 and 2015 , respectively. If 2015 results for our U.K. operations had been translated at the lower exchange rates of 2016 , our operating revenue and operating income by segment would have been lower by approximately $ 26.5 million and $ 5.0 million , respectively, in the third quarter of 2015 , and approximately $ 46.1 million and $ 9.3 million , respectively, in the first nine months of 2015 . As previously discussed, the vote by the U.K. in the second quarter of 2016 to leave the European Union has caused significant weakening of the British pound sterling relative to preceding periods, and we expect this volatility to continue in the near term. However, it is important to distinguish between translating and converting foreign currency. Except for a limited number of transactions, we do not actually convert pounds into dollars. As a result, we view foreign currency translation as a financial reporting item and not a reflection of operations or profitability in the U.K.

Premium income for the third quarter and first nine months of 2016 increased relative to the same periods of 2015 , with combined premium growth in our principal operating business segments of approximately 5 percent due to sales growth, premium rate increases, and stable to favorable persistency for most of our product lines. Premium income continues to decline, as expected, in our Closed Block segment.

Net investment income was generally consistent in the third quarter and the first nine months of 2016, relative to the same periods of 2015. Higher levels of invested assets and higher miscellaneous income are being offset by the decrease in yield on invested assets as a result of the low interest rate environment.

There were no other-than-temporary impairment losses on fixed maturity securities included in net realized investment gains and losses for the third quarter of 2016 , compared to $9.4 million for the third quarter of 2015. Other-than-temporary impairment losses on fixed maturity securities included in net realized investment gains and losses for the first nine months of 2016 and 2015 were $ 30.5 million and $ 22.0 million , respectively. The year-over-year increase was driven by impairments recognized on fixed

maturity securities in the energy sector. Also included in net realized investment gains and losses were changes in the fair value of an embedded derivative in a modified coinsurance arrangement, which resulted in realized gains (losses) of $ 9.7 million and $ (27.3) million in the third quarters of 2016 and 2015, respectively, and $ 14.3 million and $ (33.2) million in the first nine months of 2016 and 2015, respectively. See Note 4 in the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further information on realized investment gains and losses.

Overall benefits experience was favorable in the third quarter and first nine months of 2016 relative to the prior year periods. See "Executive Summary" contained in this Item 2 and "Segment Operating Results" as follows for further discussion by segment and product line.

Commissions and the deferral of acquisition costs increased in the third quarter and first nine months of 2016 relative to the same periods of 2015 due to sales growth. Growth in the level of the deferred asset resulted in higher amortization in the third quarter and first nine months of 2016 compared to the prior year, the impact of which was partially offset for the first nine months of 2016 compared to the prior year due to increased amortization in the first quarter of 2015 resulting from a higher level of policy terminations relative to assumptions for certain issue years within some of our Unum US supplemental and voluntary product lines.

Interest and debt expense was higher in the third quarter and first nine months of 2016 relative to the same periods of 2015 due to higher levels of outstanding debt.

Other expenses, including compensation expense, increased in the third quarter and first nine months of 2016 relative to the comparable periods of 2015 . However, the premium income growth rates in 2016 more than offset the growth rates in other expenses as we continue our focus on expense management and operating efficiencies, resulting in a decline in the other expense ratio compared to the same periods of 2015 .

Our effective income tax rates for the third quarter and first nine months of 2016 were 28.9 percent and 30.0 percent of income before income tax, respectively, compared to 31.8 percent and 30.5 percent for the prior year periods. Our effective tax rate differs from the U.S. statutory rate of 35 percent primarily due to the impact of tax credits as well as foreign earnings which are taxed at lower rates than the U.S. statutory rate. Our effective tax rates were favorably impacted by the enactment of an income tax rate reduction by the U.K. government which reduced the net deferred tax liability related to our U.K. operations by $4.5 million during the third quarter of 2016. See Note 11 in the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further discussion of our income tax.

Consolidated Sales Results

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



(in millions)
	Three Months Ended September 30						Nine Months Ended September 30
	2016		% Change		2015		2016		% Change		2015
Unum US	$	133.6	(11.5	)%	$	151.0	$	558.6	(4.5	)%	$	584.7

Unum UK	£	14.8	15.6	%	£	12.8	£	43.6	17.2	%	£	37.2

Colonial Life	$	104.2	9.3	%	$	95.3	$	302.6	12.7	%	$	268.6

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

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

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

Segment Results

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

Unum US Segment

The Unum US segment includes group long-term and short-term disability insurance, group life and accidental death and dismemberment products, and supplemental and voluntary lines of business, which are comprised of individual disability, voluntary benefits, and dental and vision products. During the third quarter of 2016, we acquired Starmount, a provider of dental and vision insurance in the U.S. workplace. The acquisition of Starmount did not have a material impact on our operating results or sales for the third quarter and first nine months of 2016. See "Acquisition of Business" contained herein in this Item 2 and Note 7 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further information.

Unum US Operating Results

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



(in millions of dollars, except ratios)
	Three Months Ended September 30								Nine Months Ended September 30
	2016			% Change		2015			2016			% Change		2015
Operating Revenue
Premium Income	$	1,315.0		5.9	%	$	1,241.8		$	3,915.7		5.6	%	$	3,708.4
Net Investment Income	207.3			(3.3	)	214.3			622.4			(3.5	)	645.0
Other Income	28.7			2.1		28.1			85.6			(5.3	)	90.4
Total	1,551.0			4.5		1,484.2			4,623.7			4.0		4,443.8

Benefits and Expenses
Benefits and Change in Reserves for Future Benefits	912.1			5.3		866.6			2,712.7			4.9		2,586.3
Commissions	145.4			5.8		137.4			439.8			4.3		421.8
Deferral of Acquisition Costs	(76.2		)	2.8		(74.1		)	(239.8		)	3.9		(230.7		)
Amortization of Deferred Acquisition Costs	64.3			(1.1	)	65.0			214.0			(1.1	)	216.4
Other Expenses	274.4			1.4		270.6			822.9			1.1		814.2
Total	1,320.0			4.3		1,265.5			3,949.6			3.7		3,808.0

Operating Income	$	231.0		5.6		$	218.7		$	674.1		6.0		$	635.8

Operating Ratios (% of Premium Income):
Benefit Ratio	69.4		%			69.8		%	69.3		%			69.7		%
Other Expense Ratio	20.9		%			21.8		%	21.0		%			22.0		%
Operating Income Ratio	17.6		%			17.6		%	17.2		%			17.1		%

Unum US Group Disability Operating Results

Shown below are financial results and key performance indicators for Unum US group disability.



(in millions of dollars, except ratios)
	Three Months Ended September 30								Nine Months Ended September 30
	2016			% Change		2015			2016			% Change		2015
Operating Revenue
Premium Income
Group Long-term Disability	$	428.1		3.3	%	$	414.3		$	1,291.6		5.1	%	$	1,229.0
Group Short-term Disability	155.5			1.5		153.2			469.2			3.7		452.5
Total Premium Income	583.6			2.8		567.5			1,760.8			4.7		1,681.5
Net Investment Income	120.1			(1.3	)	121.7			360.7			(3.0	)	371.9
Other Income	22.8			5.6		21.6			68.2			(2.6	)	70.0
Total	726.5			2.2		710.8			2,189.7			3.1		2,123.4

Benefits and Expenses
Benefits and Change in Reserves for Future Benefits	458.5			0.3		457.1			1,404.0			2.6		1,367.9
Commissions	44.2			4.2		42.4			134.3			4.2		128.9
Deferral of Acquisition Costs	(11.6		)	12.6		(10.3		)	(35.3		)	11.0		(31.8		)
Amortization of Deferred Acquisition Costs	9.0			7.1		8.4			27.0			7.1		25.2
Other Expenses	141.0			(1.0	)	142.4			429.5			0.6		426.9
Total	641.1			0.2		640.0			1,959.5			2.2		1,917.1

Operating Income	$	85.4		20.6		$	70.8		$	230.2		11.6		$	206.3

Operating Ratios (% of Premium Income):
Benefit Ratio	78.6		%			80.5		%	79.7		%			81.3		%
Other Expense Ratio	24.2		%			25.1		%	24.4		%			25.4		%
Operating Income Ratio	14.6		%			12.5		%	13.1		%			12.3		%

Persistency:
Group Long-term Disability									90.5		%			92.1		%
Group Short-term Disability									87.4		%			87.9		%

Premium income increased in the third quarter and first nine months of 2016 compared to the same periods of 2015 , driven primarily by an increase in the in-force block due to prior period sales, partially offset by lower persistency. Net investment income was lower in the third quarter and first nine months of 2016 relative to the same periods of 2015 due primarily to a decline in yield on invested assets. Other income is comprised primarily of fees from administrative services products.

Benefits experience was favorable in the third quarter and first nine months of 2016 compared to the same periods of 2015 due primarily to lower claim incidence rates and favorable claim recovery experience in our group long-term disability product line and shorter claim duration periods and lower prevalence rates in our group short-term disability product line.

Commissions and the deferral of acquisition costs were higher in the third quarter and first nine months relative to the same periods of 2015 due to prior period sales growth and the timing of certain sales-related expenses. The amortization of deferred acquisition costs increased in the third quarter and first nine months of 2016 relative to the same periods of 2015 due to growth in the level of the deferred asset. Our other expense ratio was favorable to the prior year periods as we continue to focus on expense management and operating efficiencies.

Unum US Group Life and Accidental Death and Dismemberment Operating Results

Shown below are financial results and key performance indicators for Unum US group life and accidental death and dismemberment.



(in millions of dollars, except ratios)
	Three Months Ended September 30								Nine Months Ended September 30
	2016			% Change		2015			2016			% Change		2015
Operating Revenue
Premium Income
Group Life	$	353.4		5.0	%	$	336.5		$	1,053.6		4.6	%	$	1,007.5
Accidental Death & Dismemberment	35.3			10.0		32.1			104.8			6.9		98.0
Total Premium Income	388.7			5.5		368.6			1,158.4			4.8		1,105.5
Net Investment Income	28.1			(19.0	)	34.7			85.5			(16.2	)	102.0
Other Income	1.1			120.0		0.5			3.3			120.0		1.5
Total	417.9			3.5		403.8			1,247.2			3.2		1,209.0

Benefits and Expenses
Benefits and Change in Reserves for Future Benefits	282.2			7.8		261.8			832.5			5.0		792.5
Commissions	31.5			5.0		30.0			94.8			4.8		90.5
Deferral of Acquisition Costs	(8.9		)	12.7		(7.9		)	(27.4		)	10.9		(24.7		)
Amortization of Deferred Acquisition Costs	7.3			12.3		6.5			22.0			12.2		19.6
Other Expenses	52.4			(1.5	)	53.2			159.6			(0.6	)	160.5
Total	364.5			6.1		343.6			1,081.5			4.2		1,038.4

Operating Income	$	53.4		(11.3	)	$	60.2		$	165.7		(2.9	)	$	170.6

Operating Ratios (% of Premium Income):
Benefit Ratio	72.6		%			71.0		%	71.9		%			71.7		%
Other Expense Ratio	13.5		%			14.4		%	13.8		%			14.5		%
Operating Income Ratio	13.7		%			16.3		%	14.3		%			15.4		%

Persistency:
Group Life									90.3		%			88.5		%
Accidental Death & Dismemberment									90.4		%			89.5		%

Premium income increased in the third quarter and first nine months of 2016 compared to the same periods of 2015 due to growth in the in-force block resulting from prior period sales and improved persistency. Net investment income was lower in the third quarter and first nine months of 2016 compared to the same periods of 2015 due primarily to a decrease in the level of invested assets.

Benefits experience was less favorable in the third quarter and first nine months of 2016 compared to the same periods of 2015 , driven primarily by a higher average claim size in group life, partially offset by favorable experience under group life waiver of premium benefits.

Commissions and the deferral of acquisition costs were higher in the third quarter and first nine months of 2016 compared to the same periods of 2015 due to prior period sales growth. The amortization of deferred acquisition costs increased in the third quarter and first nine months of 2016 compared to the same periods of 2015 due to growth in the level of the deferred asset. The other expense ratio declined in the third quarter and first nine months of 2016 compared to the same periods of 2015 due to our continued focus on expense management and operating efficiencies.

Unum US Supplemental and Voluntary Operating Results

Shown below are financial results and key performance indicators for Unum US supplemental and voluntary product lines.



(in millions of dollars, except ratios)
	Three Months Ended September 30								Nine Months Ended September 30
	2016			% Change		2015			2016			% Change		2015
Operating Revenue
Premium Income
Individual Disability	$	125.6		5.0	%	$	119.6		$	374.4		5.2	%	$	355.9
Voluntary Benefits	197.1			5.9		186.1			602.1			6.5		565.5
Dental and Vision	20.0			—		—			20.0			—		—
Total Premium Income	342.7			12.1		305.7			996.5			8.2		921.4
Net Investment Income	59.1			2.1		57.9			176.2			3.0		171.1
Other Income	4.8			(20.0	)	6.0			14.1			(25.4	)	18.9
Total	406.6			10.0		369.6			1,186.8			6.8		1,111.4

Benefits and Expenses
Benefits and Change in Reserves for Future Benefits	171.4			16.0		147.7			476.2			11.8		425.9
Commissions	69.7			7.2		65.0			210.7			4.1		202.4
Deferral of Acquisition Costs	(55.7		)	(0.4	)	(55.9		)	(177.1		)	1.7		(174.2		)
Amortization of Deferred Acquisition Costs	48.0			(4.2	)	50.1			165.0			(3.8	)	171.6
Other Expenses	81.0			8.0		75.0			233.8			3.1		226.8
Total	314.4			11.5		281.9			908.6			6.6		852.5

Operating Income	$	92.2		5.1		$	87.7		$	278.2		7.5		$	258.9

Operating Ratios (% of Premium Income):
Benefit Ratios:
Individual Disability	52.6		%			52.3		%	52.5		%			50.9		%
Voluntary Benefits	46.5		%			45.8		%	44.2		%			43.3		%
Dental and Vision	68.0		%			—			68.0		%			—
Other Expense Ratio	23.6		%			24.5		%	23.5		%			24.6		%
Operating Income Ratio	26.9		%			28.7		%	27.9		%			28.1		%

Persistency:
Individual Disability									91.2		%			90.2		%
Voluntary Benefits									76.8		%			75.3		%
Dental and Vision									84.5		%			—

Premium income was higher in the third quarter and first nine months of 2016 compared to the same periods of 2015 , driven by the addition of the dental and vision product offering as a result of the Starmount acquisition in August 2016 as well as growth in the in-force block of individual disability and voluntary benefits products due to prior period sales and favorable persistency. Net investment income was higher in the third quarter and first nine months of 2016 relative to the comparable periods of 2015 due to growth in the level of invested assets, partially offset by a decline in yield on invested assets. Other income decreased in the third quarter and first nine months of 2016 relative to the same periods of 2015 due primarily to the expected decline in surrender fees as our interest sensitive life products mature.

Benefits experience for the individual disability product line in the third quarter of 2016 was generally consistent with the prior year period but was less favorable in first nine months of 2016 than the prior year period due primarily to a higher average claim size. Benefits experience for voluntary benefits in the third quarter and the first nine months of 2016 was less favorable relative to the same periods of 2015 due primarily to the life product line. Also affecting the year-over-year comparative benefits experience for voluntary benefits during the first nine months was a release of active life reserves in the critical illness product line resulting from policy terminations during 2015. The dental and vision product line will typically have a higher benefit ratio than the other product lines reported in our supplemental and voluntary line of business, but the benefits experience for the two months since acquisition was consistent with expectations.

Commissions were higher for the third quarter of 2016 and first nine months of 2016 relative to the same periods of 2015 due to prior period sales growth. The deferral of acquisition costs in the third quarter and first nine months of 2016 was generally consistent with the prior year periods. Amortization of deferred acquisition costs declined year over year due to a higher level of policy terminations in 2015 relative to assumptions for certain issue years within certain product lines. Our other expense ratio improved relative to the prior year periods as we continue our focus on expense management and operating efficiencies.

Sales



(in millions of dollars)
	Three Months Ended September 30						Nine Months Ended September 30
	2016		% Change		2015		2016		% Change		2015
Sales by Product
Group Disability and Group Life and AD&D
Group Long-term Disability	$	24.3	(29.2	)%	$	34.3	$	110.1	(10.9	)%	$	123.5
Group Short-term Disability	11.7		(23.0	)	15.2		52.8		(26.3	)	71.6
Group Life and AD&D	31.1		(8.8	)	34.1		127.2		1.2		125.7
Subtotal	67.1		(19.7	)	83.6		290.1		(9.6	)	320.8
Supplemental and Voluntary
Individual Disability	16.4		(22.6	)	21.2		47.7		2.6		46.5
Voluntary Benefits	45.6		(1.3	)	46.2		216.3		(0.5	)	217.4
Dental and Vision	4.5		—		—		4.5		—		—
Subtotal	66.5		(1.3	)	67.4		268.5		1.7		263.9
Total Sales	$	133.6	(11.5	)	$	151.0	$	558.6	(4.5	)	$	584.7

Sales by Market Sector
Group Disability and Group Life and AD&D
Core Market (< 2,000 lives)	$	52.8	(13.7	)%	$	61.2	$	196.4	(14.0	)%	$	228.5
Large Case Market	14.3		(36.2	)	22.4		93.7		1.5		92.3
Subtotal	67.1		(19.7	)	83.6		290.1		(9.6	)	320.8
Supplemental and Voluntary	66.5		(1.3	)	67.4		268.5		1.7		263.9
Total Sales	$	133.6	(11.5	)	$	151.0	$	558.6	(4.5	)	$	584.7

Sales of our group products decreased in the third quarter and first nine months of 2016 compared to the same periods of 2015 , primarily driven by a decrease in sales to new customers in both the core market segment, which we define as employee groups with fewer than 2,000 lives, and in the large case market segment. Sales to existing customers in the large case market increased during the first nine months of 2016 compared to the prior year period but were lower in the third quarter of 2016 relative to the third quarter of 2015. The sales mix in the group market sector for the first nine months of 2016 was approximately 68 percent core market and 32 percent large case market.

Individual disability sales, which are primarily concentrated in the multi-life market, decreased in the third quarter of 2016 compared to the same period of 2015 driven by lower sales to new customers. The growth in sales of individual disability in the first nine months of 2016 compared to the same period of 2015 was attributable to sales to existing customers. Sales of voluntary benefits decreased slightly in the third quarter of 2016 compared to the same period of 2015 , with a decrease in sales to new and existing customers in the large case market, mostly offset by growth in sales to existing customers in the core market segment. The slight decline in voluntary benefits sales in the first nine months of 2016 relative to the prior year period was a result of lower sales to new customers in the large case market. Also contributing to supplemental and voluntary sales in the third quarter and first nine months of 2016 were sales of the dental and vision products resulting from the Starmount acquisition.

Segment Outlook

During 2016, we expect to achieve year-over-year premium growth resulting from stable persistency and our disciplined approach to sales. We believe additional improvement in our premium and sales growth rates may occur if the overall economic recovery further accelerates and/or industry pricing levels increase to better align with our view of adequate premium rates, particularly given the current low interest rate environment. The low interest rate environment continues to place pressure on our profit margins by impacting net investment income yields. Our net investment income may also be impacted, either favorably or unfavorably, by fluctuations in miscellaneous investment income. As part of our continued pricing discipline and our reserving strategy, we continuously monitor emerging interest rate experience and adjust our pricing and reserve discount rates, as appropriate. The implementation of premium rate increases may unfavorably impact persistency in certain of our product lines. Unfavorable economic conditions could lead to a higher rate of claim incidence, lower levels of claim recoveries, or lower claim discount rates, but we currently expect our group disability benefit ratio for full year 2016 to be favorable to 2015 full year performance. Our amortization of deferred acquisition costs may be unfavorably impacted, particularly in our supplemental and voluntary product line, by higher than expected policy terminations. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly.

We remain confident in our strategy of providing consumers with valuable financial protection benefits, broadening our employer client relationships, and building collaborative partnerships with complementary product manufacturers, technology firms, and distributors. Our continued investment in our franchise includes active client management and a differentiated integrated experience across our product lines. There are significant growth opportunities in each of our markets and within our existing client base, and we continue to invest in the people, processes, and technologies that will allow us to enhance our ability to grow the market over the long term. The acquisition of Starmount broadens our employee benefit offerings but is not expected to materially impact our operating or sales results for 2016.

We believe future profit margin improvement is achievable, driven primarily by our continued product mix shift, expense efficiencies, and consistent operating effectiveness. Underpinning our strategy is our continued commitment to risk management discipline, talent development, and our core values.

Unum UK Segment

The Unum UK segment includes insurance for group long-term disability, group life, and supplemental lines of business which include dental, individual disability, and critical illness. Unum UK's products are sold primarily in the United Kingdom through field sales personnel and independent brokers and consultants.

Operating Results

Shown below are financial results and key performance indicators for the Unum UK segment.



(in millions of dollars, except ratios)
	Three Months Ended September 30								Nine Months Ended September 30
	2016			% Change		2015			2016			% Change		2015
Operating Revenue
Premium Income
Group Long-term Disability	$	85.5		(15.0	)%	$	100.6		$	274.1		(7.6	)%	$	296.5
Group Life	24.9			(16.2	)	29.7			80.9			(10.7	)	90.6
Supplemental	16.9			18.2		14.3			52.4			35.4		38.7
Total Premium Income	127.3			(12.0	)	144.6			407.4			(4.3	)	425.8
Net Investment Income	28.5			1.8		28.0			89.3			(0.9	)	90.1
Other Income	—			—		—			0.2			100.0		—
Total	155.8			(9.7	)	172.6			496.9			(3.7	)	515.9

Benefits and Expenses
Benefits and Change in Reserves for Future Benefits	91.3			(6.8	)	98.0			284.8			(1.6	)	289.5
Commissions	9.2			(18.6	)	11.3			27.9			(17.0	)	33.6
Deferral of Acquisition Costs	(2.1		)	(19.2	)	(2.6		)	(6.1		)	(15.3	)	(7.2		)
Amortization of Deferred Acquisition Costs	2.3			(28.1	)	3.2			7.4			(15.9	)	8.8
Other Expenses	26.9			(10.3	)	30.0			84.2			(3.9	)	87.6
Total	127.6			(8.8	)	139.9			398.2			(3.4	)	412.3

Operating Income	$	28.2		(13.8	)	$	32.7		$	98.7		(4.7	)	$	103.6

Foreign Currency Translation

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

Fluctuations in the pound to dollar exchange rate have an effect on Unum UK's reported financial results and our consolidated financial results. In periods when the pound strengthens relative to the preceding period, translating pounds into dollars increases current period results relative to the prior period. In periods when the pound weakens, as occurred in the third quarter and first nine months of 2016 compared to the same periods of 2015 , translating pounds into dollars decreases current period results relative to the prior period. The discussion of financial and sales results as follows is based on local currency.



(in millions of pounds, except ratios)
	Three Months Ended September 30								Nine Months Ended September 30
	2016			% Change		2015			2016			% Change		2015
Operating Revenue
Premium Income
Group Long-term Disability	£	65.1		0.3	%	£	64.9		£	196.7		1.7	%	£	193.4
Group Life	19.0			(1.0	)	19.2			58.0			(1.9	)	59.1
Supplemental	12.8			39.1		9.2			37.6			48.6		25.3
Total Premium Income	96.9			3.9		93.3			292.3			5.2		277.8
Net Investment Income	21.7			19.9		18.1			64.1			9.2		58.7
Other Income	—			—		—			0.1			100.0		—
Total	118.6			6.5		111.4			356.5			5.9		336.5

Benefits and Expenses
Benefits and Change in Reserves for Future Benefits	69.6			10.0		63.3			204.5			8.3		188.8
Commissions	7.0			(4.1	)	7.3			20.0			(9.1	)	22.0
Deferral of Acquisition Costs	(1.6		)	(5.9	)	(1.7		)	(4.4		)	(6.4	)	(4.7		)
Amortization of Deferred Acquisition Costs	1.7			(15.0	)	2.0			5.3			(7.0	)	5.7
Other Expenses	20.4			5.2		19.4			60.4			5.8		57.1
Total	97.1			7.5		90.3			285.8			6.3		268.9

Operating Income	£	21.5		1.9		£	21.1		£	70.7		4.6		£	67.6

Weighted Average Pound/Dollar Exchange Rate	1.312					1.550			1.396					1.533

Operating Ratios (% of Premium Income):
Benefit Ratio	71.8		%			67.8		%	70.0		%			68.0		%
Other Expense Ratio	21.1		%			20.8		%	20.7		%			20.6		%
Operating Income Ratio	22.2		%			22.6		%	24.2		%			24.3		%

Persistency:
Group Long-term Disability									88.7		%			88.5		%
Group Life									80.1		%			80.6		%
Supplemental									90.5		%			88.6		%

Premium income increased in the third quarter and first nine months of 2016 compared to the same periods of 2015 driven by growth in the supplemental product line associated with the addition of the dental product offering in September 2015. Also contributing to the increase in premium income is sales growth and favorable persistency in our group long-term disability product line.

Net investment income was higher in the third quarter and first nine months of 2016 relative to the prior year periods due primarily to an increase in investment income from inflation index-linked bonds which we invest in to support the claim reserves associated with certain of our group policies that provide for inflation-linked increases in benefits. The year-over-year increase in net investment income attributable to these index-linked bonds was generally offset by changes in the reserves for future claims payments related to the inflation index-linked group long-term disability and group life policies.

Overall benefits experience was less favorable in the third quarter and first nine months of 2016 relative to the prior year periods due primarily to a higher average claim size and an increase in the claim incidence rate in our group life product line. Benefits experience in our group long-term disability product line was less favorable in the third quarter of 2016 compared to the prior year period due to a higher average claim size but was favorable in the first nine months of 2016 as a result of a higher level of net claim settlements. Benefits experience for our supplemental line of business was less favorable in the third quarter and first nine months of 2016 relative to the prior year periods due primarily to the addition of the dental product line, which typically has a higher benefit ratio than other product lines reported in our supplemental line of business.

Commissions declined in the third quarter and first nine months of 2016 relative to the same prior year periods due to lower commission rates on certain products as well as an unusually high level of incentive payments during the first quarter of 2015 which has now returned to more normal levels. The deferral of acquisition costs was lower in the third quarter and first nine months of 2016 compared to the same prior year periods due to lower deferrable commissions and the high level of deferrable incentive payments during the first quarter of 2015 . The amortization of deferred acquisition costs during the third quarter and first nine months of 2016 was lower than the same prior year periods due to a decrease in the level of the deferred asset. The other expense ratio was marginally higher in the third quarter and first nine months of 2016 compared to the same prior year periods due to an increase in operational investments in our business.

Sales



(in millions of dollars and pounds)
	Three Months Ended September 30						Nine Months Ended September 30
	2016		% Change		2015		2016		% Change		2015
Sales by Product
Group Long-term Disability	$	11.6	(1.7	)%	$	11.8	$	36.4	(1.1	)%	$	36.8
Group Life	6.1		(9.0	)	6.7		16.2		(4.1	)	16.9
Supplemental	1.7		41.7		1.2		8.2		156.3		3.2
Total Sales	$	19.4	(1.5	)	$	19.7	$	60.8	6.9		$	56.9

Sales by Market Sector
Group Long-term Disability and Group Life
Core Market (< 500 lives)	$	10.9	(15.5	)%	$	12.9	$	30.6	2.3	%	$	29.9
Large Case Market	6.8		21.4		5.6		22.0		(7.6	)	23.8
Subtotal	17.7		(4.3	)	18.5		52.6		(2.0	)	53.7
Supplemental	1.7		41.7		1.2		8.2		156.3		3.2
Total Sales	$	19.4	(1.5	)	$	19.7	$	60.8	6.9		$	56.9

Sales by Product
Group Long-term Disability	£	8.8	14.3	%	£	7.7	£	26.1	8.3	%	£	24.1
Group Life	4.7		9.3		4.3		11.7		6.4		11.0
Supplemental	1.3		62.5		0.8		5.8		176.2		2.1
Total Sales	£	14.8	15.6		£	12.8	£	43.6	17.2		£	37.2

Sales by Market Sector
Group Long-term Disability and Group Life
Core Market (< 500 lives)	£	8.4	1.2	%	£	8.3	£	22.1	13.9	%	£	19.4
Large Case Market	5.1		37.8		3.7		15.7		—		15.7
Subtotal	13.5		12.5		12.0		37.8		7.7		35.1
Supplemental	1.3		62.5		0.8		5.8		176.2		2.1
Total Sales	£	14.8	15.6		£	12.8	£	43.6	17.2		£	37.2

The growth in group long-term disability sales for the third quarter and first nine months of 2016 was driven by sales to new customers in the core market, which we define as employee groups with fewer than 500 lives. Sales in the group long-term disability large case market increased in the third quarter of 2016 relative to the prior year but were at a consistent level year over year for the first nine months, with sales to existing customers generally offset by a decline in new customer sales. Group life sales growth in the third quarter and first nine months of 2016 was driven primarily by sales to new customers in the large case market. The increase in supplemental sales during the third quarter and first nine months of 2016 compared to the same periods of 2015 was due to the addition of sales related to our dental product offering as well as higher sales in our critical illness product line.

Segment Outlook

Our primary focus during 2016 remains building on the key capabilities that we believe will enable us to deliver future growth. We expect to further improve our profitability through an increased focus on new to market sales, premium rate increases, and continued pursuit of efficiency opportunities.

We expect the low interest rate environment to continue to contribute to a dampening of overall earnings growth, and unfavorable economic conditions may lead to a higher rate of claim incidence, lower levels of claim recoveries, or lower claim discount rates. As part of our continued pricing discipline and our reserving strategy, we continuously monitor emerging interest rate experience and adjust our pricing and reserve discount rates, as appropriate. We believe the current low levels of inflation in the U.K. may adversely impact our index-linked net investment income, with an expected corresponding reduction in the cost of benefits. We may see some near-term dampening of growth in Unum UK due to the current disruption and uncertainty in the U.K. economy as a result of the Brexit referendum. The magnitude and longevity of potential negative economic impacts on our growth will depend on the agreements reached by the U.K. and European Union as a result of exit negotiations and the resulting response of the U.K. marketplace. While we may experience volatility in the fair values for our investments in U.K. and European Union-based issuers in the short term, we do not expect a material increase in other-than-temporary impairments or defaults, nor do we believe this volatility will impact our ability to hold these investments. There are no indications currently that capital requirements for our U.K. operations will change, but economic conditions may in the near term cause volatility in our solvency ratios. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly.

We remain committed to driving growth in the U.K. market. We will continue to follow a disciplined approach to new sales activity in the competitive pricing environment. We do, however, see genuine opportunities to grow the market in the U.K. through establishing new relationships with employers, deepening the level of coverage with our existing corporate clients, and through new offerings such as our dental product. We have seen some positive results in terms of new to market sales and increased coverage in existing cases. In addition, we continue to focus on new market opportunities by raising awareness of the need for income protection. Expanding group long-term disability market penetration remains a significant opportunity and priority. We anticipate returning to more normal levels of premium growth when economic conditions improve and there are higher levels of employment, increases in corporate payrolls, and expansion of benefit spending.

Colonial Life Segment

The Colonial Life segment includes insurance for accident, sickness, and disability products, life products, and cancer and critical illness products issued primarily by Colonial Life & Accident Insurance Company and marketed to employees at the workplace through an independent contractor agency sales force and brokers.

Operating Results

Shown below are financial results and key performance indicators for the Colonial Life segment.



(in millions of dollars, except ratios)
	Three Months Ended September 30								Nine Months Ended September 30
	2016			% Change		2015			2016			% Change		2015
Operating Revenue
Premium Income
Accident, Sickness, and Disability	$	207.7		5.7	%	$	196.5		$	619.2		4.8	%	$	591.1
Life	68.0			8.8		62.5			203.4			8.1		188.1
Cancer and Critical Illness	78.4			5.8		74.1			234.1			5.5		222.0
Total Premium Income	354.1			6.3		333.1			1,056.7			5.5		1,001.2
Net Investment Income	36.1			0.6		35.9			105.7			(3.7	)	109.8
Other Income	0.4			N.M.		0.1			1.0			N.M.		0.1
Total	390.6			5.8		369.1			1,163.4			4.7		1,111.1

Benefits and Expenses
Benefits and Change in Reserves for Future Benefits	182.6			7.1		170.5			541.2			6.1		510.2
Commissions	78.7			8.3		72.7			233.3			7.1		217.8
Deferral of Acquisition Costs	(69.5		)	10.8		(62.7		)	(201.1		)	7.4		(187.2		)
Amortization of Deferred Acquisition Costs	52.2			7.0		48.8			155.8			3.7		150.2
Other Expenses	67.6			6.5		63.5			199.9			6.0		188.6
Total	311.6			6.4		292.8			929.1			5.6		879.6

Operating Income	$	79.0		3.5		$	76.3		$	234.3		1.2		$	231.5

Operating Ratios (% of Premium Income):
Benefit Ratio	51.6		%			51.2		%	51.2		%			51.0		%
Other Expense Ratio	19.1		%			19.1		%	18.9		%			18.8		%
Operating Income Ratio	22.3		%			22.9		%	22.2		%			23.1		%

Persistency:
Accident, Sickness, and Disability									75.2		%			74.8		%
Life									84.8		%			85.0		%
Cancer and Critical Illness									82.6		%			81.6		%

N.M. = not a meaningful percentage

Premium income increased in the third quarter and first nine months of 2016 relative to the same periods of 2015 as a result of sales growth and stable persistency. Net investment income was generally consistent in the third quarter of 2016 compared to the same period of 2015 but was lower in the first nine months of 2016 relative to the first nine months of 2015 due to a decrease in yield on invested assets and lower miscellaneous investment income, partially offset by an increase in the level of invested assets.

Benefits experience was less favorable in the third quarter and first nine months of 2016 as compared to the same periods of 2015 , driven primarily by less favorable mortality experience in the life line of business, partially offset by favorable claims experience in the accident, sickness, and disability and cancer and critical illness product lines.

Commissions and the deferral of acquisition costs were higher in the third quarter and first nine months of 2016 compared to the same periods of 2015 due primarily to higher sales. The amortization of deferred acquisition costs increased during the third

quarter and first nine months of 2016 relative to the comparable prior year periods due to growth in the level of deferred asset. The other expense ratio in the third quarter and first nine months of 2016 was generally consistent with the prior year periods.

Sales



(in millions of dollars)
	Three Months Ended September 30						Nine Months Ended September 30
	2016		% Change		2015		2016		% Change		2015
Sales by Product
Accident, Sickness, and Disability	$	67.0	11.9	%	$	59.9	$	195.4	15.2	%	$	169.6
Life	20.9		12.4		18.6		59.6		12.2		53.1
Cancer and Critical Illness	16.3		(3.0	)	16.8		47.6		3.7		45.9
Total Sales	$	104.2	9.3		$	95.3	$	302.6	12.7		$	268.6

Sales by Market Sector
Commercial
Core Market (< 1,000 lives)	$	67.7	12.6	%	$	60.1	$	201.0	10.2	%	$	182.4
Large Case Market	10.6		(9.4	)	11.7		32.9		13.8		28.9
Subtotal	78.3		9.1		71.8		233.9		10.7		211.3
Public Sector	25.9		10.2		23.5		68.7		19.9		57.3
Total Sales	$	104.2	9.3		$	95.3	$	302.6	12.7		$	268.6

Sales in aggregate were higher in the third quarter and first nine months of 2016 relative to the same periods of 2015 due to growth in both new and existing customer account sales. Commercial market sales increased in the third quarter and first nine months of 2016 as compared to the same periods of 2015 due primarily to higher sales to both new and existing customer accounts in the core market, which we define as accounts with fewer than 1,000 lives. Sales to new customer accounts in the large case market declined in the third quarter and first nine months of 2016 relative to the same periods of 2015, while sales to existing customers in the large case market increased in the third quarter and first nine months of 2016 relative to the prior year periods. The growth in our public sector market sales for the third quarter and first nine months of 2016 was primarily attributable to increases in existing customer account sales. The number of new accounts increased 21.0 percent and 22.2 percent, respectively, in the third quarter and first nine months of 2016 relative to the same periods of 2015 , and the average new case size decreased 13.6 percent and 8.0 percent, respectively.

Segment Outlook

We expect to see continued favorable sales and premium growth trends in 2016. Volatility in net investment income is likely to continue as a result of fluctuations in miscellaneous investment income. We expect our annual benefit ratio for 2016 to be generally consistent with the level of 2015. While we expect the low interest rate environment to continue to pressure our profit margins, we believe our underlying profitability will remain strong.

Disciplined execution of our growth strategy should deliver sales and premium growth that are in line with long-term expectations. U.S. economic conditions and the increasing competition in the voluntary market are seen as external risks to achievement of our business plans. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly.

We believe our success will be driven primarily by execution in the core commercial and public sector segments and through expansion of the overall market. We believe the current market environment offers considerable opportunities to meet the emerging needs of employers, brokers, and consumers. We intend to continue to focus on growth, the customer experience, productivity, and talent development. Key drivers in our 2016 plan include a focus on strategic growth markets, distribution expansion, third-party connectivity, enrollment solutions, service capabilities, and operational excellence.

Closed Block Segment

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

Operating Results

Shown below are financial results and key performance indicators for the Closed Block segment.



(in millions of dollars, except ratios)
	Three Months Ended September 30								Nine Months Ended September 30
	2016			% Change		2015			2016			% Change		2015
Operating Revenue
Premium Income
Individual Disability	$	129.9		(8.6	)%	$	142.2		$	394.0		(9.0	)%	$	433.0
Long-term Care	161.4			1.8		158.6			482.0			1.5		475.0
All Other	1.7			N.M.		0.5			2.7			125.0		1.2
Total Premium Income	293.0			(2.8	)	301.3			878.7			(3.4	)	909.2
Net Investment Income	334.1			2.0		327.5			1,008.6			3.0		979.6
Other Income	21.5			—		21.5			65.3			(3.3	)	67.5
Total	648.6			(0.3	)	650.3			1,952.6			(0.2	)	1,956.3

Benefits and Expenses
Benefits and Change in Reserves for Future Benefits	556.6			0.1		555.8			1,667.2			0.3		1,661.6
Commissions	23.5			(5.6	)	24.9			70.7			(5.2	)	74.6
Interest and Debt Expense	1.7			6.3		1.6			5.1			2.0		5.0
Other Expenses	38.2			(5.2	)	40.3			114.7			(7.6	)	124.1
Total	620.0			(0.4	)	622.6			1,857.7			(0.4	)	1,865.3

Operating Income	$	28.6		3.2		$	27.7		$	94.9		4.3		$	91.0

Interest Adjusted Loss Ratios:
Individual Disability	81.5		%			80.8		%	83.3		%			81.4		%
Long-term Care	93.8		%			89.9		%	91.8		%			86.9		%

Operating Ratios (% of Premium Income):
Other Expense Ratio	13.0		%			13.4		%	13.1		%			13.6		%
Operating Income Ratio	9.8		%			9.2		%	10.8		%			10.0		%

Persistency:
Individual Disability									90.7		%			91.0		%
Long-term Care									94.8		%			95.4		%

N.M. = not a meaningful percentage

Premium income for individual disability decreased in the third quarter and first nine months of 2016 compared to the same periods of 2015 due to expected policy terminations and maturities. Premium income for long-term care increased due primarily to rate increases, partially offset by policy terminations. We continue to file requests with various state insurance departments for premium rate increases on certain of our individual and group long-term care policies. The rate increases reflect current interest rates and claims experience, higher expected future claims, longevity, persistency, and other factors related to pricing long-term care coverage. In states for which a rate increase is submitted and approved, we routinely provide customers options for coverage changes or other approaches that might fit their current financial and insurance needs.

Net investment income was higher in the third quarter and first nine months of 2016 relative to the same periods of 2015 due to higher miscellaneous investment income and an increase in the level of invested assets. Other income, which includes the underlying results of certain blocks of individual disability reinsured business and the net investment income thereon, was consistent in the third quarter of 2016 relative to the same period of 2015 and lower in the first nine months of 2016 relative to the same periods of 2015 due to lower investment income on those investment portfolios driven by a decrease in the level of invested assets.

Individual disability benefits experience for the third quarter and first nine months of 2016 was unfavorable compared to the same periods of 2015 due to unfavorable mortality experience, lower recoveries, and a reduction in the claim reserve discount rate to recognize the impact on future portfolio yields from the higher than normal level of bond tenders and calls experienced during 2016. Long-term care benefits experience was unfavorable in the third quarter and first nine months of 2016 compared to the same periods of 2015 due to a higher average size of new claims and less favorable mortality experience, as well as the unfavorable impact of a large group case moving to an individual policy ported status during 2016.

The other expense ratio in the third quarter and first nine months of 2016 was lower than the same periods of 2015 due to lower litigation expenses and our continued focus on operating effectiveness and expense management.

Segment Outlook

We intend to continue our focus on operational effectiveness, rate increases, enhancement of our experience analysis tools, and capital management. We expect operating revenue to decline over time as these closed blocks of business wind down, although we anticipate additional premium income associated with long-term care rate increases. We will likely experience volatility in net investment income due to fluctuations of miscellaneous investment income. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly. We expect the low interest rate environment to continue to place pressure on our earnings and the adequacy of our reserves.

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

Corporate Segment

The Corporate segment includes investment income on corporate assets not specifically allocated to a line of business, interest expense on corporate debt other than non-recourse debt, and certain other corporate income and expense not allocated to a line of business.

Operating Results



(in millions of dollars)
	Three Months Ended September 30								Nine Months Ended September 30
	2016			% Change		2015			2016			% Change		2015
Operating Revenue
Net Investment Income	$	5.4		(15.6	)%	$	6.4		$	15.1		(25.6	)%	$	20.3
Other Income	0.9			(50.0	)	1.8			2.5			(3.8	)	2.6
Total	6.3			(23.2	)	8.2			17.6			(23.1	)	22.9

Interest and Other Expenses	47.9			36.5		35.1			126.7			12.0		113.1

Operating Loss	$	(41.6	)	(54.6	)	$	(26.9	)	$	(109.1	)	(21.0	)	$	(90.2	)

Net investment income was lower in the third quarter and first nine months of 2016 compared to the same periods of 2015 due primarily to a decrease in the yield on invested assets and lower miscellaneous investment income.

Interest and other expenses were higher in the third quarter and first nine months of 2016 compared to the same periods of 2015 due primarily to higher levels of outstanding debt and expenses related to the acquisition of Starmount.

Segment Outlook

We expect the low interest rate environment to continue to place pressure on investment income. We are currently holding capital at our insurance subsidiaries and holding companies at levels that exceed our long-term requirements, and we expect to continue to generate excess capital on an annual basis through our statutory earnings. While we intend to maintain our disciplined approach to risk management, we believe we are well positioned with substantial flexibility to preserve our capital strength and at the same time explore opportunities to deploy the excess capital that is generated.

Investments

Overview

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

We actively manage our asset and liability cash flow match and our asset and liability duration match to limit interest rate risk. We may redistribute investments among our different lines of business, when necessary, to adjust the cash flow and/or duration of the asset portfolios to better match the cash flow and duration of the liability portfolios. Asset and liability portfolio modeling is updated on a quarterly basis and is used as part of the overall interest rate risk management strategy. Cash flows from the in-force asset and liability portfolios are projected at current interest rate levels and also at levels reflecting an increase and a decrease in interest rates to obtain a range of projected cash flows under the different interest rate scenarios. These results enable us to assess the impact of projected changes in cash flows and duration resulting from potential changes in interest rates. Testing the asset and liability portfolios under various interest rate scenarios enables us to choose what we believe to be the most appropriate investment strategy, as well as to limit the risk of disadvantageous outcomes. Although we test the asset and liability portfolios under various interest rate scenarios as part of our modeling, the majority of our liabilities related to insurance contracts are not interest rate sensitive, and we therefore have minimal exposure to policy withdrawal risk. Our determination of

investment strategy relies on long-term measures such as reserve adequacy analysis and the relationship between the portfolio yields supporting our various product lines and the aggregate discount rate assumptions embedded in the reserves. We also use this analysis in determining hedging strategies and utilizing derivative financial instruments for managing interest rate risk and the risk related to matching duration for our assets and liabilities. We do not use derivative financial instruments for speculative purposes.

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

Fixed Maturity Securities

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

Fixed Maturity Securities - By Industry Classification

As of September 30, 2016



(in millions of dollars)
Classification	Fair Value		Net Unrealized Gain		Fair Value of Fixed Maturity Securities with Gross Unrealized Loss		Gross Unrealized Loss		Fair Value of Fixed Maturity Securities with Gross Unrealized Gain		Gross Unrealized Gain
Basic Industry	$	2,754.8	$	295.6	$	181.1	$	9.9	$	2,573.7	$	305.5
Capital Goods	4,254.5		596.3		53.5		3.5		4,201.0		599.8
Communications	3,183.0		517.7		152.2		7.2		3,030.8		524.9
Consumer Cyclical	1,557.0		217.0		8.4		—		1,548.6		217.0
Consumer Non-Cyclical	6,729.2		999.1		168.6		7.3		6,560.6		1,006.4
Energy	5,272.6		546.0		612.4		50.3		4,660.2		596.3
Financial Institutions	3,445.3		376.8		18.9		0.1		3,426.4		376.9
Mortgage/Asset-Backed	2,386.2		207.4		10.2		0.3		2,376.0		207.7
Sovereigns	981.7		232.7		—		—		981.7		232.7
Technology	1,649.8		125.2		71.6		4.0		1,578.2		129.2
Transportation	1,929.9		336.3		0.6		—		1,929.3		336.3
U.S. Government Agencies and Municipalities	3,748.9		721.7		22.1		0.2		3,726.8		721.9
Public Utilities	8,422.6		1,518.6		81.4		1.3		8,341.2		1,519.9
Total	$	46,315.5	$	6,690.4	$	1,381.0	$	84.1	$	44,934.5	$	6,774.5

The following two tables show the length of time our investment-grade and below-investment-grade fixed maturity securities had been in a gross unrealized loss position as of September 30, 2016 and at the end of the prior four quarters. The relationships of the current fair value to amortized cost are not necessarily indicative of the fair value to amortized cost relationships for the securities throughout the entire time that the securities have been in an unrealized loss position nor are they necessarily indicative of the relationships after September 30, 2016 . The decrease in the unrealized loss on fixed maturity securities during the third quarter of 2016 was due primarily to a decrease in credit spreads, partially offset by an increase in U.S. Treasury rates.

Unrealized Loss on Investment-Grade Fixed Maturity Securities

Length of Time in Unrealized Loss Position



(in millions of dollars)
	2016						2015
	September 30		June 30		March 31		December 31		September 30
Fair Value < 100% >= 70% of Amortized Cost

<= 90 days	$	2.2	$	0.8	$	15.7	$	73.2	$	34.0
> 90 <= 180 days	0.3		4.8		34.0		56.0		108.4
> 180 <= 270 days	4.0		0.4		26.3		157.9		17.2
> 270 days <= 1 year	—		2.7		68.9		24.9		15.5
> 1 year <= 2 years	8.1		25.5		24.2		17.3		0.1
> 2 years <= 3 years	—		—		3.3		9.7		10.2
> 3 years	1.1		2.2		2.5		2.9		0.1
Sub-total	15.7		36.4		174.9		341.9		185.5

Fair Value < 70% >= 40% of Amortized Cost

> 90 <= 180 days	—		—		—		3.8		9.0
> 180 <= 270 days	—		—		—		11.1		—
> 1 year <= 2 years	—		—		—		3.6		—
Sub-total	—		—		—		18.5		9.0

Total	$	15.7	$	36.4	$	174.9	$	360.4	$	194.5

Unrealized Loss on Below-Investment-Grade Fixed Maturity Securities

Length of Time in Unrealized Loss Position



(in millions of dollars)
	2016						2015
	September 30		June 30		March 31		December 31		September 30
Fair Value < 100% >= 70% of Amortized Cost

<= 90 days	$	0.4	$	2.4	$	3.7	$	10.2	$	36.4
> 90 <= 180 days	0.3		3.5		4.5		50.8		58.7
> 180 <= 270 days	1.6		1.9		41.5		51.1		3.7
> 270 days <= 1 year	0.9		14.5		43.0		1.3		14.1
> 1 year <= 2 years	30.6		71.3		38.7		34.5		21.8
> 2 years <= 3 years	11.4		—		11.3		15.0		16.4
> 3 years	10.2		19.9		10.5		5.3		8.6
Sub-total	55.4		113.5		153.2		168.2		159.7

Fair Value < 70% >= 40% of Amortized Cost

<= 90 days	—		—		—		—		—
> 90 <= 180 days	—		—		—		9.6		6.3
> 180 <= 270 days	—		—		22.8		21.6		—
>270 days <= 1 year	—		8.9		33.9		4.1		20.8
> 1 year <= 2 years	6.4		—		26.0		21.8		1.9
> 2 years <= 3 years	—		—		13.5		7.6		8.9
> 3 years	6.6		6.8		0.2		5.0		0.2
Sub-total	13.0		15.7		96.4		69.7		38.1

Fair Value <= 40% of Amortized Cost

> 180 <= 270 days	—		—		—		20.4		—
>270 days <= 1 year	—		—		—		—		—
> 1 year <= 2 years	—		—		—		10.3		—
> 2 years <= 3 years	—		—		—		13.3		—
Sub-total	—		—		—		44.0		—

Total	$	68.4	$	129.2	$	249.6	$	281.9	$	197.8

At September 30, 2016 , we held no fixed maturity securities with a gross unrealized loss greater than $10.0 million.

During the first quarter of 2016, we recognized an other-than-temporary impairment loss of $11.6 million on fixed maturity securities issued by a large U.S.-based energy company. At the time of the impairment loss, the company had a high debt-to-equity ratio, and its projected liquidity had decreased significantly as a result of the declines in oil prices and the likelihood that prices may stay at depressed levels for an extended period of time. The company has assets it can sell, but liquidation may be difficult in the current environment. Additionally, the lower oil prices resulted in the company's banks significantly reducing the availability on the company’s revolving line of credit. At the time of the impairment loss, these securities had been in an unrealized loss position for a period of greater than one year but less than two years. In addition to this impairment loss, during the first and second quarters of 2016, we recognized smaller other-than-temporary impairment losses on fixed maturity securities issued by energy companies totaling $9.5 million and $9.1 million, respectively.

We had no individual realized investment losses of $10.0 million or greater from the sale of fixed-maturity securities during the third quarter or first nine months of 2016 and 2015. We had no individual realized investment losses of $10.0 million or greater from other-than-temporary impairments during the third quarter of 2016 or during the first nine months of 2015 .

At September 30, 2016 , we had minimal exposure to investments for which the payment of interest and principal is guaranteed under a financial guaranty insurance policy, and the securities in aggregate have a weighted average credit rating of investment-grade absent the guaranty insurance policy. At September 30, 2016 , we held $138.7 million fair value ($125.3 million amortized

cost) of perpetual debentures, or "hybrid" securities, that generally have no fixed maturity date. Interest on these securities due on any payment date may be deferred by the issuer. The interest payments are generally deferrable only to the extent that the issuer has suspended dividends or other distributions or payments to any of its shareholders or any other perpetual debt instrument.

At September 30, 2016 , our mortgage/asset-backed securities had an average life of 4.20 years, effective duration of 5.39 years, and a weighted average credit rating of Aaa. The mortgage/asset-backed securities are valued on a monthly basis using valuations supplied by the brokerage firms that are dealers in these securities as well as independent pricing services. One of the risks involved in investing in mortgage/asset-backed securities is the uncertainty of the timing of cash flows from the underlying loans due to prepayment of principal with the possibility of reinvesting the funds in a lower interest rate environment. We use models which incorporate economic variables and possible future interest rate scenarios to predict future prepayment rates. The timing of prepayment cash flows may also cause volatility in our recognition of investment income. We recognize investment income on these securities using a constant effective yield based on projected prepayments of the underlying loans and the estimated economic life of the securities. Actual prepayment experience is reviewed periodically, and effective yields are recalculated when differences arise between prepayments originally projected and the actual prepayments received and currently projected. The effective yield is recalculated on a retrospective basis, and the adjustment is reflected in net investment income.

We have no exposure to subprime mortgages, "Alt-A" loans, or collateralized debt obligations in our investment portfolios. We have not invested in mortgage-backed derivatives, such as interest-only, principal-only, or residuals, where market values can be highly volatile relative to changes in interest rates. The credit quality of our mortgage-backed securities portfolio has not been negatively impacted by the issues in the market concerning subprime mortgage loans. The change in value of our mortgage-backed securities portfolio has moved in line with that of prime agency-backed mortgage-backed securities.

As of September 30, 2016 , the amortized cost and fair value of our below-investment-grade fixed maturity securities was $3,514.2 million and $3,611.4 million , respectively. Below-investment-grade securities are inherently more risky than investment-grade securities since the risk of default by the issuer, by definition and as exhibited by bond rating, is higher. Also, the secondary market for certain below-investment-grade issues can be highly illiquid. Additional downgrades may occur, but we do not anticipate any liquidity problems resulting from our investments in below-investment-grade securities, nor do we expect these investments to adversely affect our ability to hold our other investments to maturity.

Fixed Maturity Securities - Foreign Exposure

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

In June 2016, the U.K. voted to leave the European Union under the Brexit referendum, and the nature and extent of the effects on interest rates, economic performance, and financial markets is still uncertain. While we may experience volatility in the fair values for our investments in U.K. and European Union-based issuers in the short term, we do not expect a material increase in other-than-temporary impairments or defaults, nor do we believe this volatility will impact our ability to hold these investments.

Our monitoring is also heightened for investments in certain other countries due to our concerns over the current economic and political environments, and we believe these investments are more vulnerable to potential credit problems. At September 30, 2016 , we had minimal exposure in those countries and had no direct exposure to financial institutions of those countries.

Fixed Maturity Securities - Energy Sector

Our investment portfolio has exposure to companies whose businesses are negatively impacted by lower oil and natural gas prices. These include exploration and production companies, refineries, midstream and pipeline companies, and oilfield service businesses. The sharp drop in the price of oil, which began in 2014 and accelerated in 2015, put pressure on the earnings and cash flows of some of these businesses. The degree to which a business is affected by oil and gas prices can vary greatly depending on, among other things, its energy subsector, exposure to different types of oil and gas within a subsector, geographic locations, cost structure flexibility, capital structure, and hedging policies. At September 30, 2016 , approximately one-third of our exposure to the energy sector was represented by the independent and oilfield subsectors where demand for products is highly correlated with oil and gas prices. The remaining two-thirds of our exposure to the energy sector was represented by the midstream, integrated, refining, and other energy subsectors, which tend to be more correlated to product volume sales as opposed to the commodity price. The majority of our energy sector holdings are investment-grade fixed maturity securities. At September 30, 2016 , the fair value of investment-grade fixed maturity securities in the energy sector was $4,570.5 million, with a gross unrealized gain of $584.3 million and a gross unrealized loss of $7.7 million. The fair value of below-investment-grade fixed maturity securities in the energy sector was $702.1 million, with a gross unrealized gain of $12.0 million and a gross unrealized loss of $42.6 million.

We perform sensitivity analysis on all energy-related investments in our portfolios, using different oil and gas price scenarios, and we continue to closely monitor this situation. While downgrades and impairments may occur, we currently believe that the impact would not materially alter our financial position or capital plans. Even if oil prices were to remain at the current levels for a period of several years, we would expect losses on these investments to be very manageable. The following table shows additional information related to our holdings in the energy sector.

Fixed Maturity Securities - Energy Sector

At September 30, 2016



(in millions of dollars)
Classification by Subsector	Fair Value		Net Unrealized Gain (Loss)			Fair Value of Fixed Maturity Securities with Gross Unrealized Loss		Gross Unrealized Loss		Fair Value of Fixed Maturity Securities with Gross Unrealized Gain		Gross Unrealized Gain
Midstream	$	2,310.1	$	188.9		$	207.8	$	6.0	$	2,102.3	$	194.9
Oil and Gas-Independent	1,546.7		156.0			250.5		25.3		1,296.2		181.3
Oil Field	171.2		(5.4		)	109.6		17.4		61.6		12.0
Oil-Integrated	891.2		170.9			13.5		0.4		877.7		171.3
Oil-Refining	301.0		33.2			21.0		1.2		280.0		34.4
Other Energy	52.4		2.4			10.0		—		42.4		2.4
Total	$	5,272.6	$	546.0		$	612.4	$	50.3	$	4,660.2	$	596.3

Mortgage Loans

Our mortgage loan po rtfolio was $1,970.4 million and $1,883.6 million on an amortized cost basis at September 30, 2016 and December 31, 2015 , respectively. Our mortgage loan portfolio is comprised entirely of commercial mortgage loans. We believe our mortgage loan portfolio is well diversified geographically and among property types. The incidence of problem mortgage loans and foreclosure activity continues to be low. Due to conservative underwriting, we expect the level of problem loans to remain low relative to the industry. We held no impaired mortgage loans at September 30, 2016 or December 31, 2015 .

Derivative Financial Instruments

We use derivative financial instruments primarily to manage reinvestment, duration, foreign currency, and credit risks. Historically, we have utilized current and forward interest rate swaps and options on forward interest rate swaps and U.S. Treasury rates, current and forward currency swaps, forward treasury locks, currency forward contracts, forward contracts on specific fixed income securities, and credit default swaps. Our current credit exposure on derivatives, which is limited to the value of those contracts in a net gain position, including accrued interest receivable less collateral held, was $0.1 million at September 30, 2016 . We held $34.0 million of cash collateral from our counterparties at September 30, 2016 . The carrying value of fixed maturity securities posted as collateral to our counterparties was $39.0 million at September 30, 2016 . We had no cash collateral posted to our counterparties at September 30, 2016 . We believe that our credit risk is mitigated by our use of multiple counterparties, all of which have an investment-grade credit rating, and by our use of cross-collateralization agreements.

Other

Our exposure to non-current investments, defined as foreclosed real estate and invested assets which are delinquent as to interest and/or principal payments, totaled $41.9 million and $36.8 million on a fair value basis at September 30, 2016 and December 31, 2015 , respectively.

For further information see "Investments" in Part I, Item 1 and "Critical Accounting Estimates" and "Investments" in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2015, and Notes 4 and 5 of the "Notes to Consolidated Financial Statements" contained herein in Item 1.

Liquidity and Capital Resources

Overview

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

We have established an investment strategy that we believe will provide for adequate cash flows from operations. We attempt to match our asset cash flows and durations with expected liability cash flows and durations to meet the funding requirements of our business. However, deterioration in the credit market may delay our ability to sell our positions in certain of our fixed maturity securities in a timely manner and adversely impact the price we receive for such securities, which may negatively impact our cash flows. Furthermore, if we experience defaults on securities held in the investment portfolios of our insurance subsidiaries, this will negatively impact statutory capital, which could reduce our insurance subsidiaries' capacity to pay dividends to our holding companies. A reduction in dividends to our holding companies could force us to seek external financing to avoid impairing our ability to pay dividends to our stockholders or meet our debt and other payment obligations. As requirements of Dodd-Frank continue to take effect in 2016 and in subsequent years, to the extent that we enter into derivatives that are subject to centralized exchanges and cleared through a regulated clearinghouse, we may be subject to stricter collateral requirements which could have an adverse effect on our overall liquidity.

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

The liquidity requirements of the holding company Unum Group are met by fixed maturity securities, short-term investments and cash, and dividends from our subsidiaries, primarily our insurance subsidiaries, as well as the issuance of common stock, debt, or other capital securities and borrowings from our credit facilities, as needed. As of September 30, 2016, Unum Group and our intermediate holding companies held fixed maturity securities, short-term investments, and cash of $598 million , excluding amounts committed for subsidiary contributions. The September 30, 2016 balance was comprised primarily of commercial paper, fixed maturity securities with a current average maturity of 4.6 years, and various money-market funds. Our sources of liquidity and cash flow support the general corporate needs of the holding company, including its common stock dividends, interest and debt service, acquisitions, and ongoing investments in our businesses.

Approximately $62 million of the amount held at September 30, 2016 was held in certain of our U.K. subsidiaries. No significant restrictions exist on our ability to use or access these funds. We currently have no intent, nor do we foresee a need, to repatriate funds from our foreign subsidiaries in the U.K. We believe we hold domestic resources sufficient to fund our liquidity requirements for the next 12 months. If we repatriate additional funds from our subsidiaries in the U.K., the amounts repatriated would be subject to repatriation tax effects which generally equal the difference in the U.S. tax rate and the U.K. tax rate.

As part of our capital deployment strategy, we have in recent years repurchased shares of Unum Group's common stock, as authorized by our board of directors. Our current share repurchase program was approved by our board of directors in May 2016 and authorizes the repurchase of up to $750 million of common stock through November 2017, with the pace of repurchase activity to depend upon various factors such as the level of available cash, alternative uses for cash, and our stock price. This new authorization replaced the previous authorization of $750 million that was scheduled to expire in November 2016. During the first nine months of 2016 , we repurchased 9.4 million shares at a cost of approximately $300 million . The dollar value of shares remaining under the current repurchase program was approximately $599 million at September 30, 2016 . See Note 9 of the "Notes to Consolidated Financial Statements" contained herein in Item 1.

Cash Available from Subsidiaries

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

Restrictions under applicable state insurance laws limit the amount of dividends that can be paid to a parent company from its insurance subsidiaries in any 12-month period without prior approval by regulatory authorities. For life insurance companies domiciled in the U.S., that limitation generally equals, depending on the state of domicile, either ten percent of an insurer's statutory surplus with respect to policyholders as of the preceding year end or the statutory net gain from operations, excluding realized investment gains and losses, of the preceding year. The payment of dividends to a parent company from a life insurance subsidiary is generally further limited to the amount of unassigned funds.

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

The ability of Unum Group and certain of its intermediate holding company subsidiaries to continue to receive dividends from their insurance subsidiaries also depends on additional factors such as RBC ratios and capital adequacy and/or solvency requirements, funding growth objectives at an affiliate level, and maintaining appropriate capital adequacy ratios to support desired ratings.

Unum Group and/or certain of its intermediate holding company subsidiaries may also receive dividends from our U.K. subsidiaries, the payment of which may be subject to applicable insurance company regulations and capital guidance in the U.K. As of January 1, 2016, Solvency II, a European Union directive that prescribes new capital requirements and risk management standards for the European insurance industry, replaced the previous capital requirements for Unum Limited. Our European holding company is also subject to the Solvency II requirements relevant to insurance holding companies, while its subsidiaries (the Unum European Economic Area (EEA) Group), which includes Unum Limited, are subject to group supervision under Solvency II. The Unum EEA Group received approval from the U.K. Prudential Regulation Authority to use its own internal model for calculating regulatory capital and also received approval for certain associated regulatory permissions including transitional relief as the Solvency II capital regime is implemented. As a result, there is no material change to capital requirements or to solvency ratios for the Unum EEA Group. There are currently no indications that capital requirements for the Unum EEA Group will change as a result of the Brexit referendum, but economic conditions may in the near term cause volatility in our solvency ratios.

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

During 2016, we intend to maintain a level of capital in our U.S. and U.K. insurance subsidiaries above the applicable capital adequacy requirements and minimum solvency margins.

Insurance regulatory restrictions do not limit the amount of dividends available for distribution from non-insurance subsidiaries except where the non-insurance subsidiaries are held directly or indirectly by an insurance subsidiary and only indirectly by Unum Group.

Funding for Employee Benefit Plans

During the first nine months of 2016 we made contributions of $52.5 million and £2.7 million to our U.S. and U.K. defined contribution plans, respectively, and expect to make additional contributions of approximately $17 million and £1 million during the remainder of 2016 . We do not expect to make contributions to our U.S. or U.K. qualified defined benefit pension plans during 2016 . We have met all minimum pension funding requirements set forth by the Employee Retirement Income Security Act. We have estimated our future funding requirements under the Pension Protection Act of 2006 and under applicable U.K. law and do not believe that any future funding requirements will cause a material adverse effect on our liquidity.

Debt

Our long-term debt balance at September 30, 2016 was $3,019.8 million , net of deferred debt issuance costs of $29.2 million, and consisted primarily of secured and unsecured senior notes and junior subordinated debt securities. Our $350.0 million 7.125% senior unsecured notes matured in September 2016, and Northwind Holdings made principal payments on its floating rate, senior secured non-recourse notes of $49.0 million in the first nine months of 2016 .

In May 2016, we issued a total of $600.0 million aggregate principal amount of senior notes: (i) $350.0 million aggregate principal amount of senior notes due in 2021 with an annual coupon rate of 3.00%, and (ii) $250.0 million aggregate principal amount of senior notes due in 2042 with an annual coupon rate of 5.75%, pursuant to a reopening of the $250.0 million aggregate principal amount outstanding of our 5.75% senior notes due 2042 issued in 2012. Both issuances are callable at or above par and rank equally in the right of payment with all of our other unsecured and unsubordinated debt. A portion of the net proceeds of the offering were used for repayment of the debt which matured in September 2016. The remainder of the proceeds are expected to be used for general corporate purposes.

In March 2016, we amended the terms of our five-year $400.0 million credit facility, which was previously set to expire in 2018, to extend through March 2021. At September 30, 2016 , letters of credit totaling $2.1 million had been issued from the credit facility, but there were no borrowed amounts outstanding.

There are no significant financial covenants associated with any of our outstanding debt obligations. We continually monitor our compliance with our debt covenants and remain in compliance. We have not observed any current trends that would cause a breach of any debt covenants. See Note 11 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 and "Debt" and Note 8 of the "Notes to Consolidated Financial Statements" contained in Part II, Items 7 and 8, respectively, of our annual report on Form 10-K for the year ended December 31, 2015 for further discussion.

Commitments

At September 30, 2016 , we had unfunded unconditional commitments of $4.8 million to fund tax credit partnership investments, $0.6 million to fund certain private equity partnerships, and $22.6 million to fund the purchase of transferable state tax credits. These commitments are recognized as liabilities in our consolidated balance sheets, with a corresponding recognition of other long-term investments and other assets, respectively. In addition, we had commitments of $75.5 million to fund certain investments in private placement fixed maturity securities, $260.4 million to fund certain private equity partnerships, and $38.0 million to fund certain commercial mortgage loans, which may or may not be funded.

At September 30, 2016 , we had a commitment of $10.0 million in the form of contingent consideration resulting from the acquisition of Starmount. This contingent consideration is payable in two increments of $5.0 million each at 18 and 24 months from the date of acquisition upon satisfaction of certain conditions. See "Acquisition of Business" contained herein in this Item 2 and Note 7 of the "Notes to Consolidated Financial Statements" contained herein in Item 1.

With respect to our commitments and off-balance sheet arrangements, see the discussion under "Commitments" in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2015 . During the first nine months of 2016 , there were

no substantive changes in our commitments, contractual obligations, or other off-balance sheet arrangements other than the changes noted herein.

Transfers of Financial Assets

Our investment policy permits us to lend fixed maturity securities to unaffiliated financial institutions in short-term securities lending agreements, which increases our investment income with minimal risk. We account for all of our securities lending agreements and repurchase agreements as secured borrowings. We had $56.6 million of securities lending agreements outstanding at September 30, 2016 which were collateralized by cash and reported as payables for collateral on investments in our consolidated balance sheets. The cash received as collateral was reinvested in short-term investments. The average balance during the first nine months of 2016 was $57.3 million, and the maximum amount outstanding at any month end was $73.9 million. In addition, at September 30, 2016 , we had $161.3 million of off-balance sheet securities lending agreements which were collateralized by securities that we were neither permitted to sell nor control. The average balance of these off-balance sheet transactions during the first nine months of 2016 was $166.3 million, and the maximum amount outstanding at any month end was $190.0 million.

We had no repurchase agreements outstanding at September 30, 2016 , nor did we utilize any repurchase agreements during the first nine months of 2016. Our use of repurchase agreements and securities lending agreements can fluctuate during any given period and will depend on our liquidity position, the availability of long-term investments that meet our purchasing criteria, and our general business needs.

Certain of our U.S. insurance subsidiaries are members of regional Federal Home Loan Banks (FHLB). As of September 30, 2016 , we owned $31.6 million of FHLB common stock and had obtained $349.5 million in advances from the regional FHLBs for the purpose of purchasing fixed maturity securities.

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

Consolidated Cash Flows



(in millions of dollars)
	Nine Months Ended September 30
	2016			2015
Net Cash Provided by Operating Activities	$	754.9		$	999.4
Net Cash Used by Investing Activities	(520.6		)	(454.8		)
Net Cash Used by Financing Activities	(259.3		)	(537.8		)
Net Increase (Decrease) in Cash and Bank Deposits	$	(25.0	)	$	6.8

Operating Cash Flows

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

Investing Cash Flows

Investing cash inflows consist primarily of the proceeds from the sales and maturities of investments. Investing cash outflows consist primarily of payments for purchases of investments. Our investment strategy is to match the cash flows and durations of our assets with the cash flows and durations of our liabilities to meet the funding requirements of our business. When market opportunities arise we may sell selected securities and reinvest the proceeds to improve the yield and credit quality of our portfolio. We may at times also sell selected securities and reinvest the proceeds to improve the duration matching of our assets and liabilities and/or re-balance our portfolio. As a result, sales before maturity may vary from period to period. Included in the purchase of fixed maturity securities during the first nine months of 2015 is the investment of proceeds received from FHLB funding advances. The sale and purchase of short-term investments is influenced by proceeds received as a result of our issuance of debt, our securities lending program, and by the amount of cash which is at times held in short-term investments to facilitate the availability of cash to fund the purchase of appropriate long-term investments, repay maturing debt, and/or to fund

our capital deployment program. Included in cash outflows for the first nine months of 2016 is $128.5 million , net of cash acquired, related to our purchase of Starmount. Included in cash outflows for the first nine months of 2015 is $54.3 million related to our purchase of National Dental Plan Limited.

See Notes 4 and 7 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further information.

Financing Cash Flows

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

In September 2016, we paid $350.0 million upon maturity of our 7.125% senior unsecured notes.

During the second quarter of 2016, we issued $350.0 million of 3.00% unsecured senior notes due 2021 and $250.0 million of 5.75% unsecured senior notes due 2042 and received total proceeds of $609.1 million.

During the first nine months of 2016 and 2015 , we made principal payments of $49.0 million and $62.6 million, respectively, on our senior secured non-recourse notes issued by Northwind Holdings.

Cash used to repurchase shares of Unum Group's common stock during the first nine months of 2016 and 2015 was $309.1 million and $326.2 million, respectively, with a portion of the cash used in the first nine months of 2016 related to the settlement of amounts due on shares purchased in the fourth quarter of 2015. During the first nine months of 2016 and 2015 , we paid dividends of $136.2 million and $129.2 million , respectively, to holders of Unum Group's common stock.

See Notes 9 and 11 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 and "Debt" contained in this Item 2 for further information.

Ratings

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

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

The table below reflects the outlook as well as the issuer credit ratings for Unum Group and the financial strength ratings for each of our traditional insurance subsidiaries as of the date of this filing.



	AM Best	Fitch	Moody's	S&P
Outlook	Stable	Stable	Stable	Stable

Issuer Credit Ratings	bbb	BBB	Baa2	BBB

Financial Strength Ratings
Provident Life and Accident	A	A	A2	A
Provident Life and Casualty	A	A	NR	NR
Unum Life of America	A	A	A2	A
First Unum Life	A	A	A2	A
Colonial Life & Accident	A	A	A2	A
Paul Revere Life	A	A	A2	A
Starmount Life Insurance Company	A-	NR	NR	NR
Unum Insurance Company	B++	A	A2	NR
Unum Limited	NR	NR	NR	A-

NR = not rated

We maintain an ongoing dialogue with the four rating agencies that evaluate us in order to inform them of progress we are making regarding our strategic objectives and financial plans as well as other pertinent issues. A significant component of our communications involves our annual review meeting with each of the four agencies. We hold other meetings throughout the year regarding our business, including, but not limited to, quarterly updates. On August 5, 2016, AM Best upgraded its rating of Starmount Life Insurance Company to A- from the previous rating of B++, reflecting Starmount’s favorable overall operating performance in recent periods, as well as the increased financial flexibility and potential operational efficiencies resulting from Unum Group's acquisition of Starmount. There have been no other changes in any of the rating agencies' outlook statements or ratings during 2016 prior to the date of this filing.

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

See our annual report on Form 10-K for the year ended December 31, 2015 for further information regarding our debt and financial strength ratings and the risks associated with rating changes.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to various market risk exposures including interest rate risk and foreign exchange rate risk. With respect to our exposure to market risk, see the discussion under "Investments" in Item 2 of this Form 10-Q and in Part II, Item 7A of our annual report on Form 10-K for the year ended December 31, 2015 . During the first nine months of 2016 , there was no substantive change to our market risk or the management of this risk.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this quarterly report. We assessed those controls based on criteria established in the 2013 Internal Control - Integrated Framework from the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, these officers concluded that our disclosure controls and procedures were effective as of September 30, 2016 .

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended, during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to Part I, Item 1, Note 10 of the "Notes to Consolidated Financial Statements" for information on legal proceedings.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in our annual report on Form 10-K for the year ended December 31, 2015 .

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

The following table provides information about our share repurchase activity for the third quarter of 2016 :



	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share (1)		(c) Total Number of Shares Purchased as Part of Publicly Announced Program (2)	(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (2)
July 1 - July 31, 2016	626,899	$	31.90	626,899	$	678,669,037
August 1 - August 31, 2016	1,599,400	34.19		1,599,400	623,992,510
September 1 - September 30, 2016	720,700	35.24		720,700	598,597,197
Total	2,946,999			2,946,999


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


(2)	In May 2016, our board of directors authorized the repurchase of up to $750 million of Unum Group's common stock through November 26, 2017.

ITEM 6. EXHIBITS

Index to Exhibits

Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


Exhibit 31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


Exhibit 32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


Exhibit 32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101

The following financial statements from Unum Group's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 , filed on October 27, 2016 , formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders' Equity, (v) Consolidated Statements of Cash Flows, (vi) the Notes to Consolidated Financial Statements.

SIGNATURES

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



	Unum Group
	(Registrant)
Date: October 27, 2016	By:	/s/ Richard P. McKenney
		Richard P. McKenney
		President and Chief Executive Officer
Date: October 27, 2016	By:	/s/ John F. McGarry
		John F. McGarry
		Executive Vice President and Chief Financial Officer

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UNM 10-Q Quarter ended Sept. 30, 2016