Unum 2007 Annual Report Download - page 56

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
54 Unum 2007 Annual Report
Year Ended December 31, 2007 Compared with Year Ended December 31, 2006
The increase in premium income for 2007 relative to the prior year is due to sales growth and overall stable persistency, although premium
persistency for certain of the product lines declined compared to the prior year. Net investment income increased relative to the prior
year primarily from growth in the level of assets supporting these lines of business.
The interest adjusted loss ratio for the individual disability — recently issued business decreased in 2007 relative to the prior year due
primarily to a decrease in the submitted claim incidence rate as well as an increase in the claim recovery rate. The interest adjusted loss
ratio for long-term care was higher in 2007 than in the prior year due primarily to an increase in the submitted claim incidence rate and a
decrease in the claim recovery and mortality rates. The benefit ratio for voluntary benefits decreased in comparison to the prior year due
primarily to a lower rate of paid claim incidence for the voluntary benefits disability line of business partially offset by a higher mortality
rate for the voluntary life line of business.
The amortization of DAC increased in 2007 relative to the prior year due to the acceleration of amortization for certain of the product
lines with lower than anticipated persistency. The other expense ratio remained level with the prior year due to the growth in premium
income and the corresponding growth in operating expenses.
Year Ended December 31, 2006 Compared with Year Ended December 31, 2005
The increase in premium income for 2006 relative to 2005 is due to sales growth and stable persistency. Net investment income increased
relative to 2005 primarily from growth in the level of assets supporting these lines of business and due to higher investment yields resulting
from a greater portion of the investment portfolio being invested in longer-term investments than in 2005.
The interest adjusted loss ratio for the individual disability — recently issued business decreased slightly in 2006 relative to 2005,
excluding the 2005 reserve charge, due primarily to an increase in the claim recovery rate, offset partially by an increase in the claim
reopen rate. The interest adjusted loss ratio for long-term care was higher in 2006 than in 2005 due primarily to the aging of the block
of business. The benefit ratio for voluntary benefits decreased in comparison to 2005 due to favorable mortality and paid incidence.
Amortization of DAC was higher for 2006 due primarily to the growth of the deferred asset for the multi-life individual disability and
voluntary benefits product lines relative to the other supplemental product lines. The amortization period for multi-life individual disability
and voluntary benefits products is generally shorter than that of the other supplemental products.
The decrease in other expenses in 2006 in comparison to 2005 is driven primarily by the individual disability — recently issued line of
business and is due mainly to relatively flat sales for 2006 and the restructuring of the distribution model for this line of business that was
implemented in mid-2005. These expense declines are partially offset by an increase in other expenses related to the voluntary benefits
lines of business driven primarily by growth in those lines of business.
Segment Outlook
Our primary focus in 2008 will be continued improvement of our claims management performance in our group disability line of business
along with growth in our core group market and our supplemental and voluntary lines of business. We expect our overall benefit ratio for
group disability to gradually improve to the 88 to 89 percent range by late 2008 to early 2009.
We are focused on diversifying our product portfolio through new initiatives such as Simply Unum and increased focus on our group
core market and voluntary product sales. Simply Unum combines group and voluntary coverages on one fully-integrated platform and
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 in the third quarter of 2007 was limited to four pilot sales offices. Marketplace
reaction from brokers and customers has been very positive. We expect the national rollout to occur during the first and second quarters
of 2008.
We expect that premium income growth will emerge in late 2008 and 2009 as our group large case market persistency stabilizes
and growth continues in our group core market and our supplemental product lines.