Unum 2006 Annual Report Download - page 162

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
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Note 14 - Segment Information - Continued
The Individual Income Protection – Closed Block segment generally consists of those individual income protection
policies that were designed to be distributed to individuals in a non-workplace setting and which were primarily in
force prior to the substantial changes in product offerings, pricing, distribution, and underwriting which generally
occurred during the period 1994 through 1998. A minimal amount of new business continued to be sold subsequent
to these changes, but we ceased selling new policies in this segment at the beginning of 2004 other than update
features contractually allowable on existing policies.
The Other segment, includes results from Unum US insured products not actively marketed (with the exception of
the individual income protection products in the Individual Income Protection – Closed Block segment), including
individual life and corporate-owned life insurance, reinsurance pools and management operations, group pension,
health insurance, and individual annuities.
The Corporate segment consists of revenue earned on corporate assets not specifically allocated to a line of business,
interest expense on corporate debt, and certain corporate income and expense not allocated to a line of business.
In conjunction with the restructuring of the individual income protection – closed block business during 2004, as
discussed in Notes 7 and 13, we at that time modified our reporting segments to include a separate segment for this
business. The reporting, monitoring, and management of the closed block of individual income protection business
as a discrete segment is consistent with our financial restructuring and separation of this business from the lines of
business which still actively market new products. In the past, this business had been reported in combination with
the individual income protection – recently issued line of business. Prior to 2004, detailed separate financial metrics
and models were unavailable to appropriately manage this block of business separately from the recently issued
individual income protection block of business.
The separation of the closed block business into a separate reporting segment required us to perform, separately for
the individual income protection – closed block business and individual income protection – recently issued
business, impairment testing for goodwill and loss recognition testing for the recoverability of deferred policy
acquisition costs and value of business acquired. As required under GAAP, prior to the change in reporting
segments, these tests were performed for the individual income protection line of business on a combined basis. The
testing indicated impairment of the individual income protection – closed block deferred policy acquisition costs,
value of business acquired, and goodwill balances of $282.2 million, $367.1 million, and $207.1 million,
respectively. Also as part of the restructuring, we increased our claim reserves for the closed block of individual
income protection business $110.6 million before tax. The impairment charges and reserve strengthening, which
total $967.0 million before tax, are reported in the Individual Income Protection – Closed Block segment. The after-
tax charge of $701.0 million is included in the net loss reported for the year ended December 31, 2004. See Note 7
for further discussion regarding the claim reserve strengthening.
In the following segment financial data, “operating revenue” excludes net realized investment gains and losses.
“Operating income” or “operating loss” excludes net realized investment gains and losses, income tax, and results of
discontinued operations. These are considered non-GAAP financial measures. These non-GAAP financial
measures of “operating revenue” and “operating income” or “operating loss” differ from revenue and income (loss)
from continuing operations before income tax as presented in our consolidated statements of operations prepared in
accordance with GAAP due to the exclusion of before tax realized investment gains and losses. We measure
segment performance for purposes of Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information, excluding realized investment gains and losses because we
believe that this performance measure is a better indicator of the ongoing businesses and the underlying trends in the
businesses. Our investment focus is on investment income to support our insurance liabilities as opposed to the
generation of realized investment gains and losses, and a long-term focus is necessary to maintain profitability over
the life of the business. Realized investment gains and losses depend on market conditions and do not necessarily
relate to decisions regarding the underlying business of our segments.