Unum 2006 Annual Report Download - page 25

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Premiums for group long-term income protection are generally based on expected claims of a pool of similar risks
plus provisions for administrative expenses and profit. Some cases carry experience rating provisions. Premiums
for experience rated group long-term income protection business are based on the expected experience of the client
given their industry group, adjusted for the credibility of the specific claim experience of the client.
We have defined underwriting practices and procedures. If the coverage amount exceeds certain prescribed age and
amount limits, we may require a prospective insured to submit evidence of insurability. Policies are typically
issued, both at inception and renewal, with rate guarantees. In both cases the usual rate guarantee is two
years. Guarantees of one year may be offered either at the request of the client or as required by us to manage risk.
In a very limited number of circumstances guarantees of three years may be offered, but this will be at an additional
cost. The profitability of the policy is dependent upon the adequacy of the rate during the rate guarantee period.
The contracts provide for certain circumstances in which the rate guarantees can be overridden.
Profitability of group long-term income protection is affected by claims experience, investment returns, persistency,
and the level of administrative expenses. Morbidity is an important factor in income protection claims experience.
Group Life
Group life products contributed approximately 20 percent of the Unum UK segment premium income in 2006.
Group life products are sold to employers as employee benefit products. Group life consists primarily of renewable
term life insurance with the coverages frequently linked to employees’ wages. Premiums for group life are generally
based on expected claims of a pool of similar risks plus provisions for administrative expenses and profit.
Underwriting and rate guarantees are similar to those utilized for group long-term income protection products.
Profitability for group life is affected by claims experience, investment returns, persistency, and the level of
administrative expenses.
Individual Income Protection
Individual income protection products generated almost four percent of the Unum UK segment premium income in
2006. Individual income protection is offered primarily to individual retail customers. Individual income protection
insurance provides the insured with a portion of earned income lost as a result of sickness or injury. Under an
individual income protection policy, monthly benefits generally are fixed at the time the policy is written. The
benefits typically range from 30 percent to 50 percent of the insured’s monthly earned income. Various options with
respect to length of benefit periods and waiting periods before payment begins are available and permit tailoring of
the policy to a specific policyholder’s needs. Individual income protection products do not provide for the
accumulation of cash values.
Premium rates for individual income protection products vary by age, gender, and occupation based on assumptions
concerning morbidity, persistency, administrative expenses, and investment income. We develop our assumptions
based on our own claims experience and published industry tables. Our underwriters evaluate the medical and
financial condition of prospective policyholders prior to the issuance of a policy.
Profitability of individual income protection products is affected by persistency, investment returns, claims
experience, and the level of administrative expenses.