Unum 2007 Annual Report Download - page 22

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
20 Unum 2007 Annual Report
The discussion and analysis presented in this section should be read in conjunction with our consolidated financial statements and notes thereto.
Executive Summary
We believe that the actions we have taken during the past several years 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. Our goal is to build
further momentum by focusing on our strengths and serving our customers well.
Our four primary objectives for 2007 were as follows:
 •ContinuetoimprovetheprotabilityofourUnumUSgroupdisabilitylineofbusiness;
 •Ensurethatallofourotherproductlinesandbusinessesthatareperformingwellcontinuetodoso;
 •Continuetoexecuteourcapitalmanagementstrategy;and
 •Successfulcompletionoftheclaimreassessmentprocessinpreparationfortheregulatorynalexamination.
In commenting on our results for 2007, we will discuss three major topics: operating performance of our three major business
segments, our capital management strategy, and our outstanding legal and regulatory issues.
Operating Performance of our Major Business Segments
Our primary focus for Unum US during 2007 was continued improvement of our claims management performance in our group disability
line of business, and we are pleased with the progress made during the year. We finished 2007 with a group disability benefit ratio of
91.5 percent for the fourth quarter of 2007, consistent with the goals we established for improved claim operational effectiveness. Our
2007 priorities also included improved profitability in certain of our supplemental products and the maintenance of current performance
levels in our other lines, and our operating results generally reflect achievement of these priorities. Compared to the prior year, operating
income during 2007 improved 22.0 percent in our group life and accidental death and dismemberment product lines and 11.2 percent in
our supplemental and voluntary product lines. Positive trends for our Unum US group lines of business include favorable pricing trends,
renewal profit improvement, and the management of case persistency. For all of our Unum US lines of business, we are aggressively
managing our operating expenses and are continuing to make improvements in our operating effectiveness. Although sales for Unum US
in 2007 were lower than in 2006, sales growth gained momentum during the second half of the year. Throughout the year we maintained
our disciplined pricing, and our overall sales mix continues to be generally in line with our target mix. The number of new accounts in the
group core market segment, which we define for Unum US as employee groups with less than 2,000 lives, increased over the prior year,
which we believe is a clear indication of our strong focus in this segment. During the third quarter of 2007, Unum US introduced Simply
Unum, a new product offering and administrative platform designed to better meet the needs of our group core market segment and our
voluntary market. The new platform represents substantial changes in existing technologies and workflow processes, from quote and
proposal to billing and administration and ultimately to the payment of claims. The initial market rollout was limited to four pilot sales
offices, with the full rollout expected to occur during the first and second quarters of 2008.
Our Unum UK segment continues to produce excellent operating results, with an increase in segment operating income of 21.4 percent
for 2007, as measured in Unum UK’s local currency, compared to 2006. Sales in Unum UK were consistent with the overall level of 2006
sales as well as sales in the core market segment, which we now define for Unum UK as employee groups with less than 500 lives. During
2007, Unum UK continued to take advantage of the opportunities offered by age equality legislation, with £7.4 million of additional sales
during 2007 compared to approximately £11.1 million of those types of sales in 2006. Excluding sales related to the change in age equality
legislation, Unum UK achieved underlying sales growth of approximately 5 percent in 2007 as compared to 2006. We are focused on
increasing market awareness and demand for disability products in the U.K. market.
Our Colonial Life segment also had excellent operating results for 2007, with an increase in segment operating income of 23.7 percent
compared to the prior year. Colonial Life’s sales increased 6.3 percent in 2007 over the prior year. Most notable were sales increases in the
public sector market for educators and in the commercial market segment for employee groups with less than 100 lives. The number of