Unum 2011 Annual Report Download - page 52

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Unum 2011 Annual Report
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We believe that the group core market and voluntary benefits market, which combined together are approximately 73 percent of our
Unum US sales for 2011 and grew approximately 8.3 percent relative to 2010, represent significant growth opportunities. We will also seek
disciplined and opportunistic growth, generally at the market growth rate, in the group large case and individual disability markets. While in
the short-term we expect economic trends to continue to pressure sales growth, we believe we are well positioned for economic recovery.
Year Ended December 31, 2010 Compared with Year Ended December 31, 2009
Unum US sales in 2010 were negatively impacted by economic conditions and the competitive environment, as sales declined
5.9 percent in 2010 relative to 2009. Sales in our group core market segment decreased 8.3 percent in 2010 compared to 2009, with lower
group long-term and short-term disability sales and lower group life and accidental death and dismemberment sales. The number of new
accounts added in our group core market segment during 2010 was 3.0 percent lower than the number of new accounts added during
2009. Sales in the group large case market segment decreased 19.8 percent in 2010 compared to 2009, due in part to one large case sold
in 2009. Our 2010 sales mix was approximately 71 percent core market and 29 percent large case market, compared to our 2009 sales mix
of approximately 68 percent core market and 32 percent large case market.
Sales of voluntary benefits increased 15.6 percent in 2010 relative to 2009, and the number of new accounts increased 13.3 percent.
Sales in our individual disability — recently issued line of business decreased 17.2 percent in 2010 compared to 2009.
Segment Outlook
Although we experienced premium and sales growth during 2011, we believe that premium and sales growth, particularly growth
in existing customer accounts, will continue to be pressured by ongoing high levels of unemployment and the competitive environment.
Opportunities for premium and sales growth are expected to re-emerge as the economy improves and employment growth resumes.
We expect some volatility in net investment income to continue as a result of fluctuations in bond calls and other types of miscellaneous
net investment income. We intend to continue to manage our expense levels relative to premium levels through operating effectiveness
and performance management.
Certain risks and uncertainties are inherent in the disability insurance business. Components of claims experience, such as incidence
and recovery rates, may be worse than we expect. Disability claim incidence and claim recovery rates may be influenced by, among other
factors, the rate of unemployment and consumer confidence. Within the group disability market, pricing and renewal actions can be taken
to react to higher claim rates, but these actions take time to implement, and there is a risk that the market will not sustain increased prices.
In addition, changes in economic and external conditions may not manifest themselves in claims experience for an extended period of
time. The current economic conditions may lead to a higher rate of claim incidence, lower levels of claim recoveries, or lower claim discount
rates. We have previously taken steps to improve our risk profile, including reducing our exposure to volatile business segments through
diversification by market size, product segment, and industry segment. We believe our claims management organization is positioned for
stable and sustainable performance levels. We are uncertain as to whether the higher claim incidence experienced in 2011 was due to the
normal volatility that occurs in our group disability business or was related to the economy. As a result of the continued decline in interest
rates, during 2011, we lowered our claim discount rate for new claim incurrals in group disability. We are initiating price increases for our
group disability products during 2012 as a result of higher claim incidence and the lower claim discount rate. We continuously monitor key
indicators to assess our risks and attempt to adjust our business plans accordingly.
We believe our Unum US growth strategy is sound and that we will be able to leverage the capabilities, products, and relationships
and reputation we have built to deliver growth as the benefits market stabilizes. We continue to see future growth opportunity based on
employee choice, defined employer funding, superior service, and effective communication. We intend to maintain our discipline and will
continue (i) directing the majority of our efforts on capturing opportunities emerging in our core group and voluntary markets to grow
them at above-market rates, (ii) focusing on margins in large case group insurance, while leveraging core market, voluntary, and other
shorter-term investments to grow at market rates, and (iii) seeking opportunities to improve margins and return in our supplemental lines
of business. We believe we are well positioned strategically in our markets and that opportunities for continued disciplined growth exist in
our group core market segment and in the voluntary markets. While the current economic conditions have impacted our ability to grow
premium income and will continue to do so until we return to a more normal economic environment, we expect to achieve marginal year