Unum 2006 Annual Report Download - page 27

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The majority of the policies included in this segment represent individual income protection insurance which was
written on a noncancelable basis and issued or assumed by Unum America, Provident, and Paul Revere Life. Under
a noncancelable policy, as long as the insured continues to pay the fixed annual premium for the policy’s duration,
we cannot cancel the policy or raise the premium. Due to the noncancelable, fixed premium nature of the policies
marketed in the past, profitability of this part of the business is largely dependent upon achieving the pricing
assumptions for morbidity, persistency, interest earned rates, and expense levels. Premium income for this segment
totaled $1,062.8 million in 2006, with approximately 94 percent of the premium income attributable to
noncancelable policies.
We have reinsurance agreements which effectively provide approximately 60 percent reinsurance coverage for our
overall consolidated risk above a specified retention limit, which at December 31, 2006, equaled approximately $8.0
billion. The maximum risk limit for the reinsurer grows to approximately $2.4 billion over time, after which any
further losses will revert to us.
Other Segment
The Other operating 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.
Premium income for the insurance products in this segment totaled $4.5 million in 2006. It is expected that revenue
and income will decline over time as these business lines wind down, and we expect to reinvest the capital
supporting these lines of business in the future growth of the Unum US, Unum UK, and Colonial segments.
Corporate Segment
The Corporate segment consists of revenue earned on corporate assets, interest expense on corporate debt, and
certain corporate income and expense not allocated to a line of business.
Discontinued Operations
During January 2007, we entered into a definitive agreement to sell our wholly-owned subsidiary, GENEX Services,
Inc. (GENEX), a leading workers’ compensation and medical cost containment services provider. Our growth
strategy is focused on the development of our primary markets, and GENEX’s specialty role in case management
and medical cost containment related to the workers’ compensation market is no longer consistent with our overall
strategic direction. We expect to close the transaction during the first quarter of 2007. GENEX is accounted for as
an asset held for sale at December 31, 2006 and is reported as discontinued operations in the consolidated financial
statements.
During 2003, we entered into an agreement to sell our Canadian branch. The transaction closed April 30, 2004.
See Note 2 of the “Notes to Consolidated Financial Statements” contained herein in Item 8 for further discussion of
our discontinued operations.
Reinsurance
In the normal course of business, we assume reinsurance from and cede reinsurance to other insurance companies.
In a reinsurance transaction a reinsurer agrees to indemnify another insurer for part or all of its liability under a
policy or policies it has issued for an agreed upon premium. The primary purpose of ceded reinsurance is to limit
losses from large exposures. However, if the assuming reinsurer is unable to meet its obligations, we remain
contingently liable. We evaluate the financial condition of reinsurers to whom we cede business and monitor
concentration of credit risk to minimize our exposure. We may also require assets to be held in trust, letters of
credit, or other acceptable collateral to support reinsurance recoverable balances.