Unum 2007 Annual Report Download - page 59

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Unum 2007 Annual Report 57
Year Ended December 31, 2007 Compared with Year Ended December 31, 2006
Premium income increased in 2007 relative to the prior year due primarily to sales of group and individual disability products and stable
persistency for those two lines of business, partially offset by lower sales for group life and continued lower persistency relative to the
levels of 2005 and early 2006. Net investment income increased in 2007 relative to the prior year due to continued growth in the business
and the assets supporting the lines of business and also due to the positive performance of the investment portfolio’s index-linked bonds.
The lower benefit ratio in 2007 in comparison to the prior year was primarily the result of a third quarter of 2007 adjustment to our
long-term assumptions for claim reserves due to emerging experience and our view of future events, which increased 2007 segment
operating income approximately £8.2 million. Also contributing to a lower benefit ratio for 2007 was a lower rate of claim incidence for
both group long-term disability and group life, partially offset by lower claim recoveries for group long-term disability.
Commissions increased in 2007 relative to the prior year primarily because of a higher portion of long-term disability business sold
and renewed in 2007 on which a commission is paid. Amortization of DAC increased in 2007 due to the shorter amortization period for
DAC resulting from the adoption of SOP 05-1. The amount of the cumulative effect adjustment decreased the 2007 opening balance of
Unum UK DAC approximately £45.1 million, or $88.3 million, which results in decreased amortization because of the lower deferred asset
level. However, the timing of policy renewals occurring during 2007 resulted in increased amortization, causing an overall net increase in
expense for 2007. The other expense ratio remained consistent with the prior year due to a continued focus on expense management.
Year Ended December 31, 2006 Compared with Year Ended December 31, 2005
Premium income increased in 2006 relative to 2005 due to higher sales during 2005 in the group long-term disability and group life lines
of business, partially offset by a decline in persistency levels, particularly in the group life line of business. Net investment income increased
in 2006 relative to 2005 due to continued growth in the business and the assets supporting the lines of business and also due to the
positive performance of the investment portfolio’s index-linked bonds. Other income for 2005 includes a before tax gain of £3.1 million
related to the disposal of Unum UK’s Netherlands branch.
The lower benefit ratio in 2006 in comparison to 2005 was attributable to favorable claim experience in all lines of business. Group
long-term disability continued to have favorable claim incidence and claim resolution experience, although to a lesser extent than in recent
periods because of a lower level of claim resolutions on an acquired block of group long-term disability business. Group life reported
favorable paid claim experience. Individual disability had favorable claim resolution experience during 2006.
Commissions decreased in 2006 due to the ongoing increase in the proportion of business sold on a no-commission-basis and lower
individual disability commissions following the sale of the Netherlands branch in 2006.
Amortization of DAC increased in 2006 due to accelerated amortization attributable to the run-off of a small in-force block of
individual disability business. Amortization of value of business acquired (VOBA), which is reported in “Other Expenses,” decreased in
2006 due to the VOBA on a previously acquired group long-term disability claims block becoming fully amortized in 2005.
Year Ended December 31
(in millions of dollars) 2007 % Change 2006 % Change 2005
Group Long-term Disability $ 84.4 6.7)% $ 79.1 (13.3)% $ 91.2
Group Life 13.2 (20.0) 16.5 (50.0) 33.0
Individual Disability 7.8 41.8 5.5 (32.1) 8.1
Total Sales $ 105.4 4.3 $ 101.1 (23.6) $ 132.3
Total Sales (in millions of pounds) £ 52.6 (2.8) £ 54.1 (25.6) £ 72.7