Unum 2009 Annual Report Download - page 62

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60
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Unum
2009
Operating Results
Shown below are financial results and key performance indicators for the Individual Disability — Closed Block segment.
Year Ended December 31
(in millions of dollars, except ratios) 2009 % Change 2008 % Change 2007
Operating Revenue
Premium Income $ 898.5 (5.6)% $ 952.3 (5.7)% $1,009.9
Net Investment Income 740.6 (3.5) 767.5 (7.3) 827.6
Other Income 100.8 2.2 98.6 (4.9) 103.7
Total 1,739.9 (4.3) 1,818.4 (6.3) 1,941.2
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits 1,489.6 (3.6) 1,544.8 (4.3) 1,614.5
Commissions 58.1 (7.3) 62.7 (9.3) 69.1
Interest and Debt Expense 16.6 (52.7) 35.1 N.M. 8.3
Other Expenses 141.3 (4.6) 148.1 5.9 139.8
Total 1,705.6 (4.8) 1,790.7 (2.2) 1,831.7
Operating Income Before Income Tax and Net
Realized Investment Gains and Losses $ 34.3 23.8 $ 27.7 (74.7) $ 109.5
Interest Adjusted Loss Ratio (1) 81.6% 82.2% 84.1%
Operating Ratios (% of Premium Income):
Other Expense Ratio (2) 15.7% 15.6% 13.8%
Before-tax Operating Income Ratio (3) 3.8% 2.9% 10.8%
Premium Persistency 93.2% 93.8% 94.3%
N.M. = not a meaningful percentage
(1) Included in this ratio for 2007 is a credit of $10.7 million related to the claim reassessment process. Excluding this credit, the interest adjusted loss ratio for 2007 would
have been 85.2%.
(2) Included in this ratio for 2007 is an expense reduction of $2.5 million related to the claim reassessment process. Excluding this item, the other expense ratio for 2007
would have been 14.1%.
(3) Included in this ratio for 2007 is a credit of $13.2 million related to the claim reassessment process. Excluding this credit, the before-tax operating income ratio for 2007
would have been 9.5%.
Year Ended December 31, 2009 Compared with Year Ended December 31, 2008
The decrease in premium income for 2009 relative to the prior year is due to the expected run-off of this block of closed business due to
lower persistency and policy maturities. Net investment income decreased in 2009 relative to the prior year due to lower interest rates on
floating rate assets as well as a lower level of assets supporting this closed block of business, partially offset by an increased level of prepayment
income on mortgage-backed securities. We also received fewer bond call premiums and consent fees during 2009 compared to 2008.
Other income, which includes the underlying results of certain blocks of reinsured business and the net investment income of portfolios
held by those ceding companies to support the block we have reinsured, increased slightly compared to the prior year due to favorable
experience in the reinsured blocks.
The interest adjusted loss ratio for 2009 declined slightly relative to the prior year due to higher claim recoveries. Interest and debt
expense decreased from the prior year due to lower rates of interest on our floating rate debt issued by Northwind Holdings and a decrease
in the amount of outstanding debt resulting from principal repayments.
The other expense ratio increased slightly in 2009 when compared to 2008 due primarily to the decline in premium income. Included
in 2008 other expenses is a $4.7 million litigation settlement.