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Unum 2007 Annual Report 43
The following chart lists charges affecting the comparability of our financial results. In describing our results, we may at times note
these items and exclude the impact on financial ratios and metrics to enhance the understanding and comparability of our Company’s
performance and the underlying fundamentals in our operations, but this exclusion is not an indication that similar items may not recur.
Year Ended December 31
(in millions of dollars) 2007 2006 2005
Benefits and Change in Reserves for Future Benefits
Regulatory Claim Reassessment Charges $ 65.8 $ 396.4 $ 52.7
Other Operating Expenses
Regulatory Claim Reassessment Charges (12.8) 15.0 22.3
Broker Compensation Settlements — 18.5 —
Total Charges, Before Tax $ 53.0 $ 429.9 $ 75.0
Total Charges, After Tax $ 34.5 $ 280.1 $ 51.6
Consolidated premium income for both 2007 and 2006 includes premium growth, relative to the preceding year, for Unum US
supplemental and voluntary lines of business, Unum UK, and Colonial Life. Unum US group disability and group life and accidental death
and dismemberment lines of business experienced year over year declines in premium income during 2007 and 2006, as expected, due
primarily to our continued pricing discipline for our Unum US group business and our strategy of developing a more balanced business
mix. Premium persistency for our Unum US group market segment declined in 2007 relative to 2006, as expected and due to a decline
in persistency in the large case market segment, but case persistency is above the level of the prior year and is consistent with our
expectations. Premium income in the Individual Disability — Closed Block segment decreased in 2007 relative to 2006 due primarily to
the expected decline in this block of closed business, although this segment’s premium income increased in 2006 relative to the prior
year due to the recapture of a ceded block of business in the third quarter of 2005.
Net investment income is progressively higher each year due primarily to the growth in invested assets, offset by a lower yield due
to the investment of new cash at lower rates than that of our overall portfolio yield and a decline in the level of prepayment income on
mortgage-backed securities in each of 2007 and 2006 relative to the preceding year. In addition, both 2007 and 2006 include a full year
of net investment income, versus a partial year during 2005, on the bonds transferred to us in conjunction with the third quarter of 2005
recapture of a ceded closed block of individual disability business. We expect that our portfolio yield will continue to gradually decline
until the market rates on new purchases increase above the level of the overall yield in our portfolio.
We reported a net realized investment loss of $65.2 million in 2007 compared to a gain of $2.2 million in 2006 and a loss of
$6.7 million in 2005. Included in those amounts are changes in the fair value of the embedded derivatives in certain reinsurance contracts,
which resulted in net realized losses of $57.3 million, $5.3 million, and $7.9 million in 2007, 2006, and 2005, respectively. Also, in the third
quarter of 2007, we recognized losses of $18.4 million related to the decline in fair value below amortized cost for certain securities for
which it was determined during the third quarter of 2007 that we no longer had the intent to hold to recovery or maturity due to anticipated
changes in our capital requirements resulting from the reinsurance transactions involving our Individual Disability — Closed Block segment
business and the related issuance of $800.0 million of notes, as well as our capital redeployment plans. See “Investments” contained
herein for further discussion.
The reported ratio of benefits and change in reserves for future benefits to premium income was 88.4 percent in 2007 compared to
95.3 percent in 2006 and 90.6 percent for 2005. As noted above, our reported benefits and change in reserves for future benefits include
charges pertaining to our claim reassessment process required by the 2004 and 2005 regulatory settlement agreements. Excluding these
charges, the ratio of benefits and change in reserves for future benefits to premium income was 87.6 percent for 2007, compared to
90.3 percent for 2006 and 90.0 percent for 2005. See “Segment Results” as follows for discussions of line of business risk results and
claims management performance in each of our segments.