Unum 2009 Annual Report Download - page 63

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61
Unum 2009 Annual Report
Year Ended December 31, 2008 Compared with Year Ended December 31, 2007
The decrease in premium income for 2008 relative to 2007 is due to the expected run-off of this block of closed business due to persistency
and policy maturities. Net investment income decreased in 2008 compared to 2007 due to a decrease in bond call premiums, a lower level
of assets, and a decline in the portfolio yield for this segment. During the fourth quarter of 2007, we entered into an intercompany reinsurance
transaction which allowed us to release excess statutory capital previously supporting this reinsured closed block of business. As a result,
the capital allocated to our Individual Disability — Closed Block segment declined, with a resulting decrease in net investment income due
to the lower asset levels needed to support allocated capital. Because this is an intercompany reinsurance arrangement, reported results
remain unchanged for this segment other than the lower net investment income.
Other income declined in 2008 relative to 2007, primarily due to a lower level of assets and the resulting lower level of net investment
income on certain blocks of business we have reinsured.
The interest adjusted loss ratio was lower in 2008 compared to 2007, excluding the decrease in our claim reassessment reserve estimate,
due primarily to lower average size of new claims and fewer reopened claims.
Interest and debt expense on the debt issued in the fourth quarter of 2007 is higher in 2008 because it represents a full year of expense
compared to a partial year of expense in 2007.
The other expense ratio is higher for 2008 relative to 2007 due to a $4.7 million litigation settlement as well as higher legal fees related
to two pending cases.
Segment Outlook
We expect that this segment may experience volatility in net investment income due to the variability in interest rates on floating rate
assets and also due to a reduced level of bond call premiums relative to historical levels. A portion of the volatility in interest income will be
offset by commensurate changes in the interest expense on our floating rate debt.
We expect that operating revenue and income will continue to decline over time as this closed block of business winds down. We believe
that the interest adjusted loss ratio for this block of business will be relatively flat over the long term, but the segment may experience
quarterly volatility. Claim resolution rates, which measure the resolution of claims from recovery, deaths, settlements, and benefit expirations,
are very sensitive to operational and environmental changes and can be volatile. Our claim resolution rate assumption used in determining
reserves is our expectation of the resolution rate we will experience over the life of the block of business and will vary from actual experience
in any one period. It is possible that variability in our reserve assumptions could result in a material impact on our reserve levels.
Corporate and Other Segment
The Corporate and Other segment includes investment income on corporate assets not specifically allocated to a line of business,
interest expense on corporate debt other than non-recourse debt, and certain other corporate income and expense not allocated to a
line of business. Corporate and Other also includes results from certain Unum US insurance products not actively marketed, including
individual life and corporate-owned life insurance, reinsurance pools and management operations, group pension, health insurance, and
individual annuities. We expect operating revenue and income resulting from these insurance products to decline over time as these
business lines wind down.