Unum 2012 Annual Report Download - page 54

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
52 UNUM 2012 ANNUAL REPORT
Year Ended December 31, 2011 Compared with Year Ended December 31, 2010
Unum US sales were higher in 2011 compared to 2010, with growth in each of our product lines, other than accidental death and
dismemberment, and growth in each of our major market segments. Sales in our group core market segment were 9.6 percent higher
in 2011 compared to 2010, with increases in each of the product lines within this market segment. The number of new accounts added
in our group core market segment during 2011 was 4.4 percent higher than the number of new accounts added during 2010.
Sales in our group large case market segment were 9.4 percent higher in 2011 compared to 2010 due to higher group long-term
disability and group life sales, partially offset by lower group short-term disability and accidental, death, and dismemberment sales.
Our sales mix of group products in 2011 was approximately 71 percent core market and 29 percent large case market.
Sales of voluntary benefits were 6.3 percent higher in 2011 compared to 2010 due primarily to higher sales from existing customers.
The number of new accounts added in the voluntary benefits product line was 2.9 percent higher in 2011 than the number of new accounts
added during 2010.
Sales in our individual disability — recently issued line of business, which are primarily concentrated in the multi-life market, were
30.2 percent higher in 2011 compared to 2010. The year-over-year increase was primarily due to strong sales in our larger sized markets,
as well as the unusually low volume of sales we experienced during 2010 for this line of business.
Segment Outlook
We believe that premium and sales growth, particularly growth in existing customer accounts, will continue to be pressured by
the ongoing high levels of unemployment and the competitive environment. Although we expect to continue to achieve marginal
year-over-year growth in our premium income during 2013 and beyond, opportunities for further premium and sales growth are not
expected to re-emerge until the economy improves and employment growth accelerates. Our net investment income may be impacted,
either favorably or unfavorably, by fluctuations in bond calls and other types of miscellaneous net investment income. The current interest
rate environment is putting near-term pressure on our profit margins by impacting net investment income and claim reserve discount rates.
As a result of the continued low interest rate environment and the aging of insureds, we began initiating price increases for our group
disability products during the first quarter of 2012 and will continue with the price increases during 2013. We anticipate that the benefit
ratio for our group disability product line for 2013 will generally be consistent with the level of 2012, depending on claim incidence rates
and claim discount rates. We think future profit margin improvement is achievable, driven primarily by our continued product mix shift
and expense efficiencies as our claims performance gradually flattens.
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 or lower discount 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. Claim incidence levels may fluctuate due to the normal volatility
that occurs in group disability business or may be related to economic conditions. 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.