Unum 2007 Annual Report Download - page 52

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
50 Unum 2007 Annual Report
Year Ended December 31, 2007 Compared with Year Ended December 31, 2006
Premium income for group disability decreased in 2007 relative to the prior year, as expected, due primarily to our more disciplined
approach to pricing, renewals, and risk selection. Premium persistency and case persistency are both consistent with our expectations
given our business mix strategy. Net investment income increased in 2007 in comparison to the prior year due to the growth in the level
of assets supporting these lines of business, partially offset by the impact of the lower yield resulting from the lower interest rate
environment and a decrease in bond call premiums. Other income includes ASO fees of $65.2 million and $60.9 million for 2007 and
2006, respectively.
Excluding the revisions to our estimate for claim reassessment costs, the benefit ratio for 2007 was lower than the benefit ratio for
2006 due primarily to lower paid claims in both group long-term and short-term disability and a higher rate of claim recoveries relative
to the prior year.
Our claim operational effectiveness continues to improve as a result of our organizational and process changes. While additional
performance improvement is expected to occur during 2008, the operational improvement we have projected may occur at a slower rate,
and we may incur higher than anticipated claim costs.
The net decrease in the amortization of DAC is due primarily to the decrease in the level of DAC for these lines of business resulting
from the adoption of the new accounting policy related to DAC on internal replacements, offset somewhat by higher amortization resulting
from the shorter amortization period for DAC. The other expense ratio, excluding the adjustments to our claim reassessment incremental
operating expense estimate, increased in 2007 compared to the prior year due to the decline in premium income as well as an increase
in advertising and branding expenses and product and service development costs.
As discussed under “Cautionary Statement Regarding Forward-Looking Statements” and in “Risk Factors,” certain risks and uncertainties
are inherent in our group disability business. Components of claims experience, including, but not limited to, incidence and recovery rates,
may be worse than we expect. Both economic and societal factors can affect claim incidence. Adjustments to reserve amounts may be
required if there are changes in assumptions regarding the incidence of claims or the rate of recovery, as well as persistency, mortality,
and interest rates used in calculating the reserve amounts.
Year Ended December 31, 2006 Compared with Year Ended December 31, 2005
Premium income for group disability decreased in 2006 relative to 2005 due to our pricing, renewal, and risk selection strategy. Net
investment income increased slightly in comparison to 2005 due to the growth in the level of assets supporting these lines of business
and an increase in bond call premiums partially offset by the impact of the lower yield resulting from the lower interest rate environment.
Other income includes ASO fees of $60.9 million for 2006 and $59.0 million for 2005.
Excluding the revisions to our estimate for claim reassessment costs, the 2006 benefit ratio of 94.8 percent was higher than the 2005
ratio of 93.8 percent due primarily to higher paid claims in both group long-term and short-term disability, partially offset by a higher rate
of claim recoveries and a decrease in the claim incidence rate for group long-term disability relative to 2005.
The other expense ratio, excluding the adjustments to our claim reassessment incremental operating expense estimate increased
in 2006 compared to 2005 due to the implementation of additional resources and process changes and also due to the decrease in
premium income.