Unum 2006 Annual Report Download - page 26

8
Colonial Segment
The Colonial segment includes insurance for income protection products, life products, and cancer and critical
illness products issued primarily by Colonial and marketed to employees at the workplace through an agency sales
force and brokers. Premium income for this segment totaled $842.1 million in 2006.
The income protection products, which generated approximately 63 percent of the Colonial segment premium
income in 2006, consist of short-term income protection plans as well as accident-only plans providing benefits for
injuries on a specified loss basis and accident and health plans covering hospital admissions and surgeries on an
indemnity basis. The life products contributed almost 16 percent of the 2006 premium income for Colonial and are
primarily comprised of universal life, whole life, level term life, and a small block of group term life policies.
Cancer and critical illness policies generated approximately 21 percent of the 2006 premium income for the Colonial
segment. Cancer policies provide various benefits for the treatment of cancer including hospitalization, surgery,
radiation, and chemotherapy. Critical illness policies provide a lump-sum benefit on the occurrence of a covered
critical illness event.
The accident and health products qualify as fringe benefits that can be purchased with pre-tax employee dollars as
part of a flexible benefits program pursuant to Section 125 of the Internal Revenue Code. Flexible benefits
programs assist employers in managing benefit and compensation packages and provide policyholders the ability to
choose benefits that best meet their needs. Congress could change the laws to limit or eliminate fringe benefits
available on a pre-tax basis, eliminating our ability to continue marketing our products this way. However, we
believe our products provide value to our policyholders which will remain even if the tax advantages offered by
flexible benefits programs are modified or eliminated.
Premiums for all products in this segment are generally based on our experience for morbidity, mortality,
persistency, and expenses. Premiums for the income protection, cancer, and critical illness products are primarily
individual guaranteed renewable wherein we have the ability to change premiums on a state by state basis. A small
percentage of the policies are written on a group basis wherein we retain the right to change premiums at the
individual account level. Premiums for the whole life and level term products are guaranteed for the life of the
contract. Premiums for the universal life products are flexible and may vary at the individual policyholder level.
For the group term life product, we retain the right to change premiums at the account level based on the experience
of the account.
We have defined underwriting practices and procedures for each of our products. Most policies are issued on a
simplified issue basis, based on answers to simple health and employment questions. If the amount applied for
exceeds certain levels, the applicant may be asked to answer additional health questions or submit to additional
medical examinations.
Profitability of these products is affected by the level of employee participation, persistency, claims experience,
investment returns, and the level of administrative expenses.
Individual Income Protection – Closed Block Segment
Generally, the insurance policies included in the Individual Income Protection - Closed Block segment are individual
income protection insurance policies that were designed to be distributed to individuals in a non-workplace setting
and that were written or assumed prior to the restructuring of our individual income protection business. This
restructuring principally occurred during the period from 1994 through 1998 and included changes in product
offerings, pricing, distribution, and underwriting. During this period we gradually changed our distribution focus for
individual income protection insurance to workplace distribution as opposed to individual setting distribution,
resulting in many of these changes. A minimal amount of new business continued to be sold subsequent to these
changes, but we stopped selling new policies in this segment at the beginning of 2004 other than update features
contractually allowable on existing policies.