Unum 2008 Annual Report Download - page 63

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The lower benefit ratio in 2008 in comparison to the prior year was primarily due to an increased rate of claim recoveries for group
long-term disability. Also included in 2008 and 2007 results are adjustments to our long-term assumptions for claim reserves due to
emerging experience and our view of future events, which increased operating income approximately £5.5 million and £8.2 million in
2008 and 2007, respectively.
The decrease in amortization of acquisition costs in 2008 relative to the prior year is due primarily to a decrease in amortization related
to internal replacement transactions that result in a policy that is substantially changed. These transactions are accounted for as an
extinguishment of the original policy and the issuance of a new policy.
The other expense ratio increased during 2008 in comparison with the prior year due primarily to expenses of £4.4 million related to
the implementation of a disciplined cost management process during the fourth quarter of 2008 that is intended to reduce our operating
expenses in the future by implementing expense efficiencies and aligning expenses with premium growth.
During 2008, Unum UK became responsible for the ongoing administration and management of a closed block of group long-term
disability claims through a reinsurance arrangement with Royal London Mutual Insurance Society Limited. At the time of the transaction,
Unum UK received cash of £24.5 million, recorded £0.4 million in accrued premiums receivable, assumed reserves of £22.2 million, and
recorded a deferred gain of £2.7 million. The transaction is not expected to materially impact operating results.
Year Ended December 31, 2007 Compared with Year Ended December 31, 2006
Premium income increased in 2007 relative to 2006 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 2006 due to continued growth in the business and
the assets supporting the lines of business and an increase in portfolio yields.
The lower benefit ratio in 2007 in comparison to 2006 was primarily the result of an 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 2006 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 effective January 1, 2007. 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 resulted 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 2006 due to our continued focus on expense
management and the growth in premium income.
Sales
Shown below are sales results in dollars and in pounds for the Unum UK segment.
Year Ended December 31
(in millions)   2007 % Change 2006
Group Long-term Disability   $ 84.4 6.7)% $ 79.1
Group Life   13.2 (20.0) 16.5
Individual Disability   7.8 41.8 5.5
   $105.4 4.3 $101.1
Group Long-term Disability   £ 42.1 —)% £ 42.1
Group Life   6.6 (26.7) 9.0
Individual Disability   3.9 30.0 3.0
   £ 52.6 (2.8) £ 54.1