Unum 2006 Annual Report Download - page 87

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Year Ended December 31, 2005 Compared with Year Ended December 31, 2004
Premium income increased in comparison to 2004 due primarily to growth in the group long-term income protection line
of business resulting from block acquisitions, the related growth in prior year sales, and favorable persistency. The
premium income increase in the group life line of business was due to prior period sales growth and favorable
persistency. Net investment income increased in 2005 relative to 2004 due to continued growth in the business and the
assets supporting the product lines, offset partially by a slight decrease in portfolio yields relative to 2004. Other income
for 2005 includes £3.1 million related to the disposal of the Netherlands branch during 2005.
While underlying claims experience was favorable, the benefit ratio for the group long-term income protection line of
business increased in comparison to 2004 due to the inclusion in 2004 of extremely favorable claim resolution
experience on an acquired block of group long-term income protection business. The benefit ratio for the group life line
of business decreased in comparison to 2004 due to favorable claim experience in 2005 and recent renewal activity
which resulted in terminations during 2005 of less profitable business.
Operating expenses increased in 2005 compared to 2004 due to growth of the lines of business, but the operating expense
ratios decreased due to an increase in premium income, economies of scale, and our focus on expense management.
Segment Outlook
During 2007, we intend to focus on continuing to restore profitable sales growth and maintaining our strong
leadership position in the U.K. We anticipate that high levels of profitability will continue, but with margins likely
to return to below 30 percent in the medium term. We also expect slower growth in operating income as the
acquisition related growth of the last several years subsides.
We also plan to explore additional market opportunities to expand our growth in both the group and individual
markets through new distribution channels and new product offerings. We believe that there is significant
opportunity to expand the U.K. market for the products and services we offer. During 2007, we also intend to invest
in process solutions to meet our customers’ needs and increase our operating efficiency.
As previously discussed, we will adopt the provisions of SOP 05-1 effective January 1, 2007. We estimate that the
amount of the cumulative effect adjustment will decrease the deferred policy acquisition cost asset for Unum UK in
the range of approximately $85.0 million to $90.0 million and that the amortization expense will be higher, in the
near-term, relative to historical trends because of the shorter amortization period for the group products.