Unum 2010 Annual Report Download - page 46

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Unum
2010
44
Year Ended December 31, 2010 Compared with Year Ended December 31, 2009
Group disability premium income decreased in 2010 compared to 2009, as the ongoing high levels of unemployment and the
competitive environment continued to pressure our premium income growth. In particular, premium growth from existing customers
continued to be unfavorably impacted by lower salary growth and lower growth in the number of employees covered under an existing
policy. Partially offsetting the unfavorable growth trend from existing customers was higher premium and case persistency for both group
long-term and short-term disability compared to 2009. Premium and case persistency increased in 2010 relative to 2009 for group long-
term disability in both the core and large case market segments. Premium and case persistency increased in 2010 relative to 2009 for
group short-term disability in the large case market segment and was generally consistent year over year in the core market segment.
Net investment income was lower in 2010 relative to 2009 due primarily to a decrease in the level of assets supporting this line of business
and a decline in the level of prepayment income on mortgage-backed securities, partially offset by an increase in bond call premiums.
Other income includes ASO fees of $57.6 million and $59.2 million for 2010 and 2009, respectively.
The benefit ratio was lower in 2010 compared to 2009 due primarily to a higher rate of claim recoveries for group long-term disability,
offset partially by an increase in claim incidence rates for both group long-term and short-term disability.
Interest and debt expense related to the debt issued by Tailwind Holdings decreased in 2010 relative to 2009 due to lower rates of
interest on the oating rate debt and a decrease in the amount of outstanding debt resulting from principal repayments.
The deferral of acquisition costs in 2010 was lower than 2009 due to lower sales. The amortization of acquisition costs in 2010 was
lower than 2009 due to a decrease in amortization related to internal replacement transactions and a declining balance in the deferred
acquisition costs asset.
The other expense ratio decreased slightly in 2010 relative to 2009, despite the decline in premium income, due to our continued
focus on expense management.
During 2009, Unum America entered into a quota share reinsurance agreement with RGA Americas Reinsurance Company, Ltd. under
which Unum America ceded closed blocks of group long-term disability claims in 2009 and in 2010. The reinsurance transaction does not
meet the conditions for reinsurance accounting and is therefore recorded using the deposit method of accounting. As such, there is no
effect on reported premium income or benefits. The only impact on the income statement is the risk charge paid to the reinsurer.
Year Ended December 31, 2009 Compared with Year Ended December 31, 2008
Premium income for group disability declined in 2009 relative to 2008, a portion of which was expected and was attributable to our
pricing, renewal, and risk selection strategy. Premium income for our Unum US group business, both disability and life, was also negatively
impacted by lower premium growth from existing customers due to lower salary growth and lower growth in the number of employees
covered under an existing policy. Premium persistency increased relative to 2008 for group short-term disability in both the core and large
case segments. Premium persistency for group long-term disability increased relative to 2008 in the core market segment but decreased in
the large case segment, resulting in an overall persistency decline for group long-term disability. Case persistency declined due to a higher
number of terminated cases in the smaller size case market within the core segment. These terminations did not affect premium
persistency negatively to the degree they affected case persistency due to a lower average premium per terminated case. Net investment
income was consistent in 2009 relative to 2008, with an increase in the level of assets offset by lower interest rates on oating rate assets.
Other income included ASO fees of $59.2 million and $64.8 million for 2009 and 2008, respectively.
The benefit ratio for 2009 was lower than the benefit ratio for 2008 due primarily to a higher rate of claim recoveries for group long-
term disability and a decrease in the paid claim incidence rates for group short-term disability. Paid claim incidence rates for group long-
term disability were higher in 2009 relative to 2008, but the average size of new claims was lower.
Interest and debt expense related to the debt issued by Tailwind Holdings decreased in 2009 relative to 2008 due to lower rates of
interest on the oating rate debt and a decrease in the amount of outstanding debt resulting from principal repayments.
The deferral of acquisition costs increased in 2009 relative to 2008 due to a higher level of deferrable expenses partially resulting from
increased group short-term disability sales. Amortization was lower in 2009 relative to 2008 due to a decrease in amortization related to
internal replacement transactions.