BOSTON MUTUAL - Big Enough to Matter,

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1 BOSTON MUTUAL - Big Enough to Matter, Small Enough to Care Boston Mutual Life Insurance Company 2012 Annu a l Report

2 OUR MISSION To bring Financial Peace of Mind to Those Who Care Since 1891, Boston Mutual s steadfast goal has been to provide families with Stability & Security. Coverage they can Trust. BOSTON MUTUAL - Big Enough to Matter, Small Enough to Care

3 Boston Mutual Statement of Ethical Market Conduct For 121 years, Boston Mutual has been providing affordable insurance coverage for working people. We are committed to the promises we have made to you, our customers. to preserve the trust you have placed in us, we pledge the following: To Safeguard the welfare of our customers; To Retain professional, ethical, well-trained people to sell and service our products; To Provide you with product information that is clear and honest; To Ensure that our sales representatives offer products suited to your insurance needs and financial objectives; To Adhere to all insurance laws and regulations; To Deliver prompt, accurate, and courteous service; To Respect the confidentiality of information you share with us; To Resolve any dispute you may have with us quickly and fairly. Boston Mutual is a proud supporter of the Life & ealth Insurance Foundation for Education (LIFE). P R O U D S U P P O R T E R Life InsuranceCompany

4 The theme for this year s Annual Report is Big Enough to Matter, Small Enough to Care. It speaks to our success over the last 121 years and reminds us of how we got to where we are today. I am proud of the respect and appreciation our employees have for you, our agents and each other, and the strong feelings expressed by you and our agents in return. Our focus on meeting the unique needs of our niche markets, primarily working Americans, defines who we are and sets us apart from our competitors. Our Mission is to bring financial peace of mind to those who care. As a policyholder of Boston Mutual you have demonstrated that you do care. Big Enough to Matter means we have the financial wherewithal to be there when you need us. Small Enough to Care means we have not lost sight of what has made us successful; our people, passion and commitment to deliver on the promises that we have made to you and your loved ones. The young, aspiring super-hero on the cover of our Annual Report reminds us of just how important those promises are to the over one million families for whom we provide some degree of security. Corporate Message PAUL A. QUARANTO, JR., mba, llif President & Chief Operating Officer The Year in Review It was a year ago in our 2011 Annual Report that Paul Petry, CEO and Chairman of the Board, announced that I would be succeeding him as President of Boston Mutual. It is an honor and privilege to serve as President of this great company, just the 7th in our 121 year history, and to have the opportunity to present to you my first Corporate Message. Most importantly, I am pleased to report that Boston Mutual had another excellent year in 2012 and that the foundation for our continued success is strong. It was our ninth consecutive year of strong pre-tax earnings and after-tax earnings reached a record level. Before I get into some of those details, I want to report that the first year of our leadership transition went well. Paul Petry has certainly provided some big shoes to fill. The company is in excellent shape strategically, operationally and financially and we are most grateful for his leadership over the last 15 years. As your new President I will work diligently to validate the trust that the Board of Directors has placed in me. Sales & Premium Income With the challenging economic and competitive environment, along with some product re-tooling efforts, overall sales for 2012 lagged behind last year s very strong results. General Agencies had an excellent sales year with a significant increase over 2011, Group Insurance sales were basically flat and Worksite Marketing fell short of last year s record sales results. Premium income experienced modest growth in 2012 due primarily to the shortfall in sales; renewal premium income experienced a healthy increase. We remain committed to our three sales and marketing areas and expect to see sales results increase in 2013.

5 Investment Income Net investment income for 2012 was 2% less than last year and the yield on invested assets dropped from 5.4% to 5.02%. This reflects the continuing low interest rate environment we are all living with and the lack of viable opportunities for new and maturing investments. Experts continue to predict that interest rates will rise at some point, but that time continues to be unknown. In the meantime, we ensure the financial strength of Boston Mutual by following our conservative investment standards. Total Benefits We paid out over $100 million in benefits to policyholders or their beneficiaries again in As reported last year, we began using Social Security data to identify policyholders who have died, but their beneficiaries have not notified us, mainly because they were unaware of their role as beneficiary. In 2012, we paid $1.1 million in death benefits resulting from this continuing effort. General Expenses General Expenses rose by 3.6%, slightly above our Premium Income growth but at a reasonable level. We continue to monitor expenses but recognize that we will need to invest in our future. We balanced those objectives well again in Operating Gain It was our ninth consecutive year of strong pre-tax earnings at $18.4 million. This was a $900,000 increase over After-tax earnings at $12.6 million reached a record level. Worksite Marketing and General Agencies continued to post strong results. Group Insurance, which experienced challenges similar to other Group carriers, posted a loss. Assets Assets increased by almost $36 million ending the year at $1.14 billion. We had no significant asset issues in 2012 and our asset allocation was consistent with prior years. At year end, bonds represented 69% of invested assets. We have very few bonds below investment grade and our average bond rating is A+. Our commercial mortgage portfolio represented 13% of our invested assets. We added another year to the enviable record of no delinquencies, foreclosures, write-downs or even a late payment with our commercial mortgage portfolio. We continue with our conservative underwriting requirements; they have served us well. Our modest common stock portfolio, including our New York subsidiary, represented a little over 3% of invested assets and increased $3.3 million in value during the year. Policy loans made up about 12% and the balance is in cash and short term investments. We continue to closely monitor all of our investments. 3

6 Big Enough to Matter Surplus Our surplus and all of our surplus ratios continue to be very strong. We remain diligent in this regard; maintaining a safety first attitude. This takes on even more importance in times of economic uncertainty. New York Subsidiary The Life Insurance Company of Boston & New York crossed the $100 million threshold for assets in 2012; a notable accomplishment representing a 10% growth in assets in Premium Income grew by 13%, driven largely by an excellent Worksite Marketing sales year. Investment income and surplus grew by almost 6% and 6.6%, respectively. Pre-tax earnings of $2 million and after-tax earnings of $1.1 million were both down from last year. The additional strain resulting from higher-than-expected sales had an impact on earnings. Commitment to Our Employees Our employees are our greatest asset and we are committed to their professional development and well being. In 2012, we formalized a comprehensive program that incorporates training and development opportunities, as well as a wellness initiative that promotes good nutrition, exercise and financial planning. Troop Support Since 2004, Linda Morris, an employee in IT, and our home office team of volunteers have delivered Care Packages to our troops in Iraq and Afghanistan. Linda has pledged to continue this effort as long as there are US troops remaining in that region of the world. The enthusiasm and support she continues to receive from the Boston Mutual Family is very heartwarming and the responses we get from the recipients of the Care Packages are very gratifying. This represents in a small way an expression of our appreciation of the sacrifices the men and women in uniform make on our behalf. Community Involvement Our generosity does not end with our troops; the Boston Mutual Family is making a difference in the local community as well. The list of our charitable endeavors includes United Way, American Cancer Society, American Red Cross, Massachusetts Society for the Prevention of Cruelty to Children, My Brother s Keeper, Junior Achievement and the Canton igh Math Team. I would invite you to visit our website at and click on the Community News tab to see some examples of the good work being done by our people. We are believers in good corporate citizenship and our employees make us proud. 4

7 Small Enough tocare Board of Director Changes In last year s Annual Report, Paul Petry announced that Nils Peterson, a retired Boston Mutual Board member, agreed to rejoin the Board due to a death. Nils reached the mandatory retirement age and retired for a second time in We thank him again for his service and dedication to Boston Mutual. In 2012, the Board voted to elect Austin Lydon to fill the vacancy left by Nils retirement. Austin is a retired Deloitte & Touche Partner. In 2013, he will also assume the role of Audit Committee Chairman. We welcome Austin to our Board and thank him for his willingness to serve. In 2013, Marnie Mueller and Vin O Reilly will be retiring from the Board of Directors. The Board has voted to add two new members to fill their vacancies; Anne awley and John Cornish. More information on these changes will be provided in our 2013 Annual Report. e was the former President and CEO of BayBank and Vice Chairman Emeritus of Bank of America. Giles was a wonderful man; very giving of himself and his time. e will be missed by his loving family and many friends. We dedicate this Annual Report in his memory. Summary Boston Mutual had another excellent year in We are proud of our accomplishments to date and, equally important, the manner in which we have gone about achieving them. Big Enough to Matter, Small Enough to Care it is who we are and why we expect our success to continue in the years ahead. You can be assured that we will be there to deliver on our promises. Annual Report Dedication In February of this year, we were saddened at the news of the death of Giles E. Mosher, Jr. Giles was elected to the Boston Mutual Board of Directors in 1985 and served for 24 years, retiring in is contributions to Boston Mutual were significant and greatly appreciated. 5

8 Balance Sheet Dollars in Thousands Year Ended December 31 ASSETS Bonds $702,515 $668,030 Preferred Stocks 0 0 Common Stocks 34,692 31,400 Mortgage Loans 129, ,913 Real Estate 8,403 7,182 Policy Loans 126, ,279 Cash & Short Term Securities 15,775 19,519 Premiums Deferred and Uncollected 46,059 46,861 Other Assets 75,371 85,563 Total Admitted Assets $1,138,431 $1,102,747 Millions of Dollars ASSETS

9 Balance Sheet Dollars in Thousands Year Ended December 31 LIABILITIES Policy Reserves $913,198 $875,555 Policy & Contract Claims 15,366 14,674 Deposit-Type Contracts 17,201 17,629 Other Policyholder Funds 2,645 2,586 Other Liabilities 51,532 54,891 Interest Maintenance Reserve (IMR) 4,193 4,111 Asset Valuation Reserve (AVR) 8,306 6,999 TOTAL LIABILITIES 1,012, ,445 SURPLUS 125, ,302 Total Liabilities & Surplus $1,138,431 $1,102,747 Millions of Dollars ADJUSTED SURPLUS (Surplus & AVR)

10 Statement of Operations & Surplus Dollars in Thousands Year Ended December 31 INCOME Premium Income $180,384 $180,134 Net Investment Income 50,071 50,861 Other Income 16,036 16,891 TOTAL INCOME 246, ,886 POLICYOLDER BENEFITS & EXPENSES Life Insurance Benefits 59,494 60,727 Accident & ealth Benefits 14,705 14,247 Other Policy Benefits 33,087 31,007 Increase in Reserves 37,329 39,349 Commissions 34,992 38,523 General Expenses 39,890 38,482 Taxes Other Than Federal Income Taxes 7,607 7,177 Dividends to Policyholders TOTAL BENEFITS & EXPENSES 228, ,377 Gain From Operations $18,421 $17,509 Millions of Dollars PREMIUM INCOME

11 Statement of Operations & Surplus Dollars in Thousands Year Ended December 31 SURPLUS GAIN FROM OPERATIONS $18,421 $17,509 Less Federal Income Tax 5,815 5,541 NET GAIN FROM OPERATIONS 12,606 11,968 Realized Capital Gain (loss) 724 1,449 Transfer (to)/from IMR (576) (1,319) NET INCOME 12,754 12,098 Other Surplus Changes (Net) (13,066) (4,579) Surplus Beginning of Year 126, ,783 Surplus at End of Year $125,990 $126,302 Billions of Dollars LIFE INSURANCE IN FORCE

12 Board of Directors JON J. COOK, Jr. Managing Director Seaward Management ENRY T. GOLDMAN, esq. Attorney at Law Law Office of enry T. Goldman TOMAS M. JOYCE, JR., esq. Attorney at Law Joyce and Joyce AUSTIN T. LYDON Partner (Retired) Deloitte & Touche MARNIE W. MUELLER, phd, clu Senior Vice President (Retired) Connecticut Mutual Life Insurance Company VINCENT M. O REILLY, cpa Distinguished Senior Lecturer Carroll School of Management - Boston College NILS P. PETERSON Chief Investment Officer (Retired) arvard Management Company PAUL E. PETRY, fsa, clu Chairman & Chief Executive Officer PAUL A. QUARANTO, Jr., mba, llif President & Chief Operating Officer RICARD P. QUINCY President Quincy & Company 10

13 Officers PAUL E. PETRY, fsa, clu Chairman & Chief Executive Officer PAUL A. QUARANTO, Jr., mba, llif President & Chief Operating Officer ERIC J. BERNAZZANI Vice President - Chief Information Officer CRISTINE T. COUGLIN, cpa 2nd Vice President - Treasurer STEPEN G. EVANS Second Vice President & Auditor TIMOTY E. FLANNIGAN Vice President - General Agencies JON R. FLORES, esq. Vice President - General Counsel & Secretary SUSAN J. GARDNER, cpa 2nd Vice President - Controller LINDA M. IZZO Vice President - uman Resources & Individual Insurance Operations CLIFFORD A. LANGE, fsa, clu Vice President - Chief Financial Officer, Chief Actuary & Chief Risk Officer DAVID C. MITCELL Vice President - Group Insurance OWARD V. NEFF, Jr. Senior Vice President - Chief Investment Officer PILIP G. SULLIVAN, m.d. Medical Director FREDERICK C. TURSTON 2nd Vice President - Chief Compliance Officer MARY T. TILLSON Vice President - Product & Field Support PETER S. TILLSON Senior Vice President - Worksite Marketing & Chief Marketing Officer 11

14 Boston Mutual... Over a Century of Service BOSTON MUTUAL LIFE INSURANCE COMPANY 120 Royall Street Canton, Massachusetts Fax /13