Unum 2006 Annual Report Download - page 47

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Our Colonial segment also had excellent operating results in 2006, with an increase in segment operating income of
18.2 percent compared to the prior year. Colonial reported sales growth of 10.0 percent in 2006 compared to last
year. The sales increase was primarily driven by sales growth in the core markets (employee groups with less than
2,000 lives). Sales in the large case market, which is comprised of employee groups with 2,000 lives or greater, also
increased in 2006 relative to the prior year. We are focused on maintaining profitable and sustainable sales growth
for this segment.
During 2006, we continued to diversify and improve our business balance by concentrating on growth in Unum UK,
Colonial, and our Unum US supplemental and voluntary product lines and by shifting our Unum US group lines of
business into a more balanced mix between small and mid-employer core market segments and the large employer
market segment. While facing challenging market conditions, we maintained our disciplined approach to pricing
and underwriting, and we are willing to sacrifice market share, if necessary, to ensure that the business we are
selling is appropriately priced. Although we have shifted our mix of group business, we continue to lead the U.S.
disability income protection insurance marketplace, according to the 2005 JHA group and individual disability
market survey results announced during the second quarter of 2006. As measured by inforce premium, we hold a
22.5 percent share in the U.S. group disability market and a 36 percent share in the U.S. individual disability market.
It is the 30th consecutive year that we have led the U.S. group disability income protection industry. In the U.K.
market, according to the GEIS 2006 survey which is based on inforce premium, we have maintained our significant
market position, with approximately 56.9 percent of the U.K. group disability market. We believe that our
continued leadership position is a testament to both the quality of our products and services as well as the strong
relationships we have established over the years with both our customers and brokers. We believe, and independent
market surveys indicate, that we have been successful in maintaining a solid reputation and strong relationships with
our customers, brokers, and agents. Survey ratings for our products and services remain favorable, and ratings for
our image and reputation are also favorable, with continued improving trends.
We constantly look for opportunities to improve the consistency of business plan execution and have initiated
actions to do so. We have improved technology solutions in our administration areas and implemented a focused
plan for consistent service delivery in our customer service areas. We have completed the first phase of a customer-
oriented business model which not only provides products and services that meet the needs of the marketplace but is
also supported by front-to-back business processes and technology. We have also introduced a new web-based
enrollment platform for our workplace benefits products that will help employees fully understand the benefit
coverage provided by an employer and the additional insurance options that may be available at the workplace.
During 2006, we joined with Matria Healthcare to create a new disability and disease management partnership
aimed at helping employers combat rising healthcare costs and improve workforce productivity.
We actively manage the credit risk and interest rate risk in our investment portfolio. During 2006, the relationship
between our reserve discount rates and the respective portfolio yield rates remained within our target ranges. We
strive to match the cash flows of our investment portfolios with the cash flows of our liabilities to eliminate as much
as possible our exposure to changes in the overall level of interest rates. While our core investments are investment
grade corporate fixed maturity securities, we also invest in other asset categories for diversification and yield. Our
investment portfolio is well diversified across industry sectors and geographically diversified with respect to our
mortgage loan portfolio. The average quality of our fixed maturity security portfolio was A2 at the end of 2006.
We believe that the actions we have taken during the past several years and in 2006 have improved the effectiveness
of the basic functions of our businesses, reduced our business volatility, and led to a greater consistency in the
execution of our business plan.
Strategic Initiatives
Capital Management Initiatives
Our significant capital management accomplishments during 2005 and 2006 have established a foundation for
improved financial flexibility in 2007 and beyond. The risk-based capital (RBC) ratio for our traditional U.S.
insurance subsidiaries, calculated on a weighted average basis using the National Association of Insurance
Commissioners (NAIC) Company Action Level formula, was approximately 300 percent at the end of 2006, our
target level for the combined RBC ratio.