Unum 2009 Annual Report Download - page 43

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Unum 2009 Annual Report
We recognized in earnings a net realized investment gain of $11.7 million in 2009 compared to losses of $465.9 million in 2008 and
$65.2 million in 2007. During 2009, we recognized other-than-temporary impairment losses of $215.5 million related to fixed maturity
securities, $211.8 million of which was recognized in earnings and $3.7 million in other comprehensive income. Other-than temporary
impairment losses on fixed maturity securities were $151.1 million and $53.7 million in 2008 and 2007, respectively, all of which were
recognized in earnings.
Also recognized in earnings through realized investment gains and losses was the change in the fair value of an embedded derivative
in a modified coinsurance arrangement. During 2009, changes in the fair value of this embedded derivative resulted in a realized gain of
$243.1 million compared to realized losses of $291.7 million in 2008 and $57.3 million in 2007. The gains and losses on this embedded
derivative resulted primarily from a change in credit spreads in the overall investment market.
Other income includes fees for administrative services only (ASO) products, which declined approximately 8.6 percent in 2009 relative
to the prior year. Other income in 2008 also included a refund of interest attributable to certain tax years.
The benefit ratio was 84.2 percent in 2009 compared to 85.1 percent in 2008 and 88.4 percent in 2007, with continuing improvement
in risk results in each of our business segments. See “Segment Results” as follows for discussions of line of business risk results and claims
management performance in each of our segments.
Interest and debt expense for 2009 was lower than 2008 due primarily to lower average levels of outstanding debt and lower
rates of interest on our floating rate debt. Interest and debt expense for 2008 was lower than 2007 due to lower rates of interest on
our outstanding debt, primarily as a result of the replacement of older fixed rate debt with non-recourse floating rate debt, as well as
lower cost related to early retirement of debt. The cost related to early retirement of debt was minimal in 2009 and 2008. The cost
related to early retirement of debt in 2007 was $58.8 million and was associated with our $769.5 million debt repurchase. See “Debt”
contained herein for additional information.
The deferral of acquisition costs in 2009 was generally consistent with the prior year, with continued growth in certain of our product
lines and the associated increase in deferrable expenses offsetting the lower level of deferrable costs in product lines with lower growth.
The amortization of acquisition costs was slightly higher in 2009 relative to the prior year due to the continued increase in the level of deferred
acquisition costs as well as an acceleration of amortization resulting from lower persistency in the Unum US supplemental and voluntary lines.
The deferral and amortization of deferred acquisition costs was higher in 2008 relative to the prior year due primarily to continued growth in
certain of our product lines. Amortization increased in 2008 relative to 2007 due to an increase in the amortization related to Unum US internal
replacement transactions as well as slightly elevated persistency in certain policy issue years.
Other expenses, as reported, decreased slightly in 2009 relative to 2008. Excluding the effect of the lower exchange rate for translating
Unum UK’s expenses, other expenses increased in 2009 due primarily to an increase in our pension costs. Other expenses, both as reported
and excluding the effect of the lower exchange rate, increased in 2008 compared to 2007 due to expenditures related to our investment
in brand and product promotion and an increase in product and service development costs in our core lines of business. We continue to
aggressively manage our operating expenses as we seek to increase the effectiveness and efficiency of our operating processes.