- -------------------------------------------------------------------------------- SEGMENTS BEFORE THE CHANGE - -------------------------------------------------------------------------------- EMPLOYEE BENEFITS - -Group LTD - -Group STD - -Group Life - -Group AD&D RELATED BUSINESSES - -UNUM Limited - -LTD Reinsurance - -Reinsurance Pools - -Special Risk Products - -D&H Reinsurance Management - -Association Group Disability COLONIAL COMPANIES - -Accident & Sickness - -Cancer - -Life INDIVIDUAL DISABILITY - -Individual Disability RETIREMENT SECURITY - -Tax Sheltered Annuities - -Long Term Care OTHER OPERATIONS - -401(k) - -Other Retirement Products - -Individual Life - -Group Medical - -------------------------------------------------------------------------------- Corporate includes transactions that are generally non-insurance related. For comparative purposes, prior period information has been restated to reflect the new reporting segments.
In the fourth quarter of 1994, UNUM recorded a pretax charge of $14.4 million related to the decision to discontinue the individual disability non-cancellable product and the acceleration of organizational changes within UNUM America, which increased operating expenses and decreased net income by $9.4 million, or $0.13 per share, for the year ended December 31, 1994. The charge consisted of $9.2 million for severance costs for approximately 150 field and 250 home office employees and $5.2 million for exit costs of certain leased facilities and equipment.
The Special Risk Insurance segment includes group life products sold by UNUM America and First UNUM, special risk accident insurance sold by Commercial Life and other special risk insurance products. The segment also includes non- disability reinsurance operations, which represent UNUM's participation in various reinsurance pools, and the reinsurance underwriting management operations of Duncanson & Holt, Inc.
The Colonial Products segment includes Colonial Life & Accident Insurance Company ("Colonial") and affiliates. Colonial, the principal subsidiary, offers payroll-deducted, voluntary employee benefits to employees at their worksites. Accident and sickness, cancer and life insurance products are marketed by Colonial primarily through independent sales representatives.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of UNUM Corporation and subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) enterprises of reporting assets and liabilities relating to reinsured contracts net of the effects of reinsurance. Since UNUM did not restate its financial statements upon adoption of FAS 113, reserve balances prior to December 31, 1993, are shown net of reinsurance recoverables.
The following tables summarize the components of investment income, net realized investment gains and changes in unrealized investment gains (losses):
For the years ended December 31, 1995, 1994 and 1993, recoveries recognized under reinsurance agreements reduced benefits to policyholders by $58.9 million, $53.3 million, and $28.9 million, respectively.
UNUM has a noncontributory defined benefit pension plan covering substantially all domestic employees, excluding employees of Colonial Companies, Inc., and Duncanson & Holt, Inc., who are covered under separate plans. The plan provides benefits based on the employee's years of service and compensation during the highest five consecutive years out of the last ten years of employment. UNUM funds the plan in accordance with the requirements of the Employee Retirement Income Security Act of 1974, as amended. Plan assets consist primarily of group annuity contracts and include 224,392 shares of UNUM Corporation common stock.
In December 1995, the Board of Directors of UNUM Corporation approved an amendment to the pension plan that included a new benefit formula.
Between 1991 and 1994, certain officers were granted limited stock appreciation rights ("LSARs") in tandem with their outstanding options. LSARs afford the optionee the right to receive payment upon a change in control as defined in the plans equal to the higher of the excess of the highest price per share paid in connection with such change in control or the fair market value per share, over the option price per share. As an underlying stock option is exercised, the LSARs are automatically canceled. At December 31, 1995, 1994 and 1993, there were 480,825 LSARs, 590,275 LSARs, and 556,500 LSARs outstanding, respectively.
UNUM has several annual incentive plans for certain employees and executive officers, that provide additional compensation based on achievement of predetermined annual corporate and affiliate financial and non-financial goals. In 1995, 1994 and 1993, expense for these plans was $19.9 million, $7.5 million and $27.9 million, respectively.