Unum 2012 Annual Report Download - page 56

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
54 UNUM 2012 ANNUAL REPORT
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 weakens relative to the preceding period, as occurred in 2012 compared to 2011, translating pounds into
dollars decreases current period results relative to the prior period. 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.
Year Ended December 31
(in millions of pounds, except ratios) 2012 % Change 2011 % Change 2010
Operating Revenue
Premium Income
Group Long-term Disability £258.4 (1.2)% £261.6 (3.9)% £272.3
Group Life 139.6 9.9 127.0 14.5 110.9
Supplemental and Voluntary 40.1 — 40.1 7.2 37.4
Total Premium Income 438.1 2.2 428.7 1.9 420.6
Net Investment Income 107.7 (9.0) 118.4 7.4 110.2
Other Income — (100.0) 0.1 (88.9) 0.9
Total 545.8 (0.3) 547.2 2.9 531.7
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits 341.4 11.0 307.7 9.3 281.4
Commissions 26.9 (5.6) 28.5 — 28.5
Deferral of Acquisition Costs (7.5) (21.1) (9.5) (1.0) (9.6)
Amortization of Deferred Acquisition Costs 9.9 5.3 9.4 9.3 8.6
Other Expenses 92.2 0.1 92.1 5.4 87.4
Total 462.9 8.1 428.2 8.0 396.3
Operating Income Before Income Tax and Net
Realized Investment Gains and Losses £ 82.9 (30.3) £119.0 (12.1) £135.4
Weighted Average Pound/Dollar Exchange Rate 1.584 1.603 1.543
Year Ended December 31, 2012 Compared with Year Ended December 31, 2011
Premium income was higher in 2012 compared to 2011, although premium growth and persistency continue to be pressured due to
the initiation of premium rate increases in our group long-term disability and group life product lines. Group long-term disability premium
income was lower in 2012 compared to 2011 due to a decline in premium persistency resulting primarily from premium rate increases,
partially offset by an increase in premium income due to growth in existing customer accounts. Group life premium income increased in
2012 relative to 2011 as a result of premium rate increases and higher new business sales, partially offset by lower premium persistency
resulting primarily from premium rate increases.
Net investment income declined in 2012 compared to 2011 due primarily to lower income on inflation index-linked bonds, a decrease in
invested asset yields, and lower income from bond call premiums, partially offset by an increase in the level of invested assets. We invest in inflation
index-linked bonds to support the claim reserves associated with certain of our group policies that provide for inflation-linked increases in benefits.
The benefit ratio was higher in 2012 compared to 2011, with unfavorable risk results in both group long-term disability and group
life. Group long-term disability risk results were unfavorable in 2012 compared to 2011 due primarily to less favorable claim recoveries and
higher incidence rates. Group life risk results were unfavorable in 2012 compared to 2011 due to a higher average claim size and higher
claim volumes. Supplemental and voluntary risk results were favorable in 2012 compared to 2011 due to lower claim incidence rates in the
group critical illness and individual disability products.
Commissions and the deferral of acquisition costs were both lower in 2012 compared to 2011 due primarily to a lower level of
individual disability product sales. The amortization of deferred acquisition costs was higher in 2012 compared to 2011 due primarily to an
increase in internal replacement transactions. The other expense ratio was lower in 2012 compared to 2011 due primarily to higher
premium income and continued expense management initiatives.