Unum 2012 Annual Report Download - page 52

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
50 UNUM 2012 ANNUAL REPORT
Year Ended December 31, 2012 Compared with Year Ended December 31, 2011
Premium income was higher in 2012 compared to 2011 due primarily to continued sales growth and stable premium persistency.
Net investment income was higher in 2012 compared to 2011 due primarily to an increase in the level of invested assets, an increase in
bond call premiums and other fees, and an increase in the level of prepayment income on mortgage-backed securities, partially offset
by a decline in yield on invested assets.
The interest adjusted loss ratio for the individual disability — recently issued line of business was higher in 2012 compared to 2011 due
primarily to higher submitted incidence rates, partially offset by higher claim recoveries. The benefit ratio for voluntary benefits was lower
in 2012 compared to 2011 driven primarily by the release of active life reserves associated with individual contracts that terminated and
bought voluntary group coverage during 2012.
Commissions and the deferral of acquisition costs were higher in 2012 compared to 2011 due to higher sales. The amortization of
deferred acquisition costs was higher in 2012 compared to 2011 due to unfavorable premium persistency relative to assumptions for certain
issue years within certain of our product lines, including the impact on persistency from the large case customer that terminated the
existing individual contracts and bought voluntary group coverage during 2012. Partially offsetting this increase in amortization was a
reduction in amortization due to a more favorable year-over-year impact from the prospective unlocking for actual experience for
assumptions which deviate compared to anticipated experience for our interest-sensitive voluntary life products. Other expenses have
grown approximately 4 percent each year, below the level of premium growth, due to our continued focus on operating effectiveness
and expense management.
The individual disability — recently issued product line had goodwill of approximately $187.5 million at December 31, 2012, none of
which is currently believed to be at risk for future impairment.
Year Ended December 31, 2011 Compared with Year Ended December 31, 2010
Premium income was higher in 2011 compared to 2010 due primarily to growth in our voluntary benefits product line. Premium
persistency for the individual disability — recently issued product line decreased, while the premium persistency for the voluntary benefits
product line increased slightly. Net investment income was higher in 2011 compared to 2010 due primarily to an increase in the level of
assets supporting these lines of business, partially offset by a decline in the level of prepayment income on mortgage-backed securities
and a decline in bond call premiums.
The interest adjusted loss ratio for the individual disability — recently issued line of business in 2011 was lower than 2010 due to lower
incidence rates. The benefit ratio for voluntary benefits was lower in 2011 compared to 2010 due primarily to a lower average paid claim
size for voluntary life and lower paid incidence and prevalence rates for voluntary disability.
Commissions and the deferral of acquisition costs were higher in 2011 than 2010 due to higher sales. The amortization of deferred
acquisition costs was lower in 2011 compared to 2010 due to favorable premium persistency relative to assumptions for certain issue years
within certain of our product lines as well as prospective unlocking for favorable mortality experience relative to assumptions for our
interest-sensitive voluntary life products.