Unum 2011 Annual Report Download - page 54

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Unum 2011 Annual Report
52
Foreign Currency Translation
The functional currency of Unum UK is the British pound sterling. Unum UK’s premiums, net investment income, claims, and expenses
are received or paid in pounds, and we hold pound-denominated assets to support Unum UK’s pound-denominated policy reserves and
liabilities. We translate Unum UK’s pound-denominated financial statement items into dollars for our consolidated financial reporting. We
translate income statement items using an average exchange rate for the reporting period, and we translate balance sheet items using the
exchange rate at the end of the period. We report unrealized foreign currency translation gains and losses in accumulated other
comprehensive income in our consolidated balance sheets.
Fluctuations in the pound to dollar exchange rate have an effect on Unum UK’s reported financial results and our consolidated financial
results. In periods when the pound strengthens relative to the preceding period, as occurred in 2011 compared to 2010, translating pounds
into dollars increases current period results relative to the prior period. In periods when the pound weakens relative to the preceding
period, as occurred in 2010 compared to 2009, translating into dollars decreases current period results relative to the prior periods.
Year Ended December 31
(in millions of pounds, except ratios) 2011 % Change 2010 % Change 2009
Operating Revenue
Premium Income
Group Long-term Disability £261.6 (3.9)% £272.3 (11.9)% £309.0
Group Life 127.0 14.5 110.9 17.9 94.1
Supplemental and Voluntary 40.1 7.2 37.4 5.1 35.6
Total Premium Income 428.7 1.9 420.6 (4.1) 438.7
Net Investment Income 118.4 7.4 110.2 38.4 79.6
Other Income 0.1 (88.9) 0.9 (43.8) 1.6
Total 547.2 2.9 531.7 2.3 519.9
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits 307.7 9.3 281.4 18.1 238.3
Commissions 28.5 — 28.5 (4.4) 29.8
Deferral of Acquisition Costs (19.1) 4.4 (18.3) (1.1) (18.5)
Amortization of Deferred Acquisition Costs 18.2 4.6 17.4 (10.8) 19.5
Other Expenses 92.1 5.4 87.4 (3.1) 90.2
Total 427.4 7.8 396.4 10.3 359.3
Operating Income Before Income Tax and Net
Realized Investment Gains and Losses £119.8 (11.5) £135.3 (15.8) £160.6
Weighted Average Pound/Dollar Exchange Rate 1.603 1.543 1.554
Year Ended December 31, 2011 Compared with Year Ended December 31, 2010
Premium income was higher in 2011 compared to 2010, although premium growth continued to be pressured by pricing actions
resulting from the competitive U.K. market. The 2011 growth in group life premium income was due primarily to an increase in the inforce
block of business from prior year sales. Persistency, although below the level of 2010, remains strong. Net investment income was higher
in 2011 compared to 2010 due primarily to an increase in the level of assets supporting this business segment, an increase in bond calls,
and higher returns from inflation index-linked bonds. These index-linked bonds support the claim reserves associated with certain of our
group policies that provide for inflation-linked increases in benefits.