Unum 2013 Annual Report Download - page 41

UNUM 2013 ANNUAL REPORT / 39
during 2013 to cede a portion of certain product lines in Unum US individual disability — recently issued and in Unum UK. Consolidated
premium income for 2012 increased relative to 2011 and included premium growth for each of our three principal operating business
segments, although the growth was unfavorably impacted by the same factors pressuring 2013 growth. Premium income year over year
continued to decline, as expected, in our Closed Block segment in both 2013 and 2012. Further discussion of premium income for each of
our segments, as well as our outlook for future premium growth, is included in “Segment Results” as follows.
Net investment income was slightly lower in 2013 relative to 2012 due primarily to a decline in the yield on invested assets, partially
offset by a higher level of invested assets. Miscellaneous net investment income, which includes income from bond calls and private equity
partnership investments, was relatively consistent on a consolidated basis but exhibited more year-over-year volatility on an operating
segment level. Net investment income was slightly lower in 2012 relative to 2011 due primarily to a decline in yield on invested assets, an
increase in the amortization of the principal amount invested in our tax credit partnerships, and lower income on our Unum UK inflation
index-linked bonds. These declines were mostly offset by a higher level of invested assets, higher bond call premiums, an increase in
income from private equity partnership investments, and higher prepayment income on mortgage-backed securities.
We recognized a net realized investment gain of $6.8 million in 2013, compared to a gain of $56.2 million in 2012 and a loss of
$4.9 million in 2011. Included in the 2013 net realized gain was a realized investment loss of $30.0 million recognized on the sale of certain
securities during the early part of the third quarter of 2013. When interest rates increased during that time period, we sold certain of our
lower yielding fixed maturity securities to take advantage of the higher interest rate environment by reinvesting the proceeds into higher
yielding securities, thereby increasing our investment yield and also improving the credit quality of our fixed maturity securities portfolio.
Included in the 2011 net realized loss was an other-than-temporary impairment loss on fixed maturity securities of $19.9 million. Also
included in our realized investment gains and losses is the change in the fair value of an embedded derivative in a modified coinsurance
arrangement, which resulted in a realized gain of $30.7 million and $51.8 million in 2013 and 2012, respectively, and a loss of $39.4 million
in 2011.
The consolidated benefit ratios were 86.5 percent in 2013 compared to 87.1 percent in 2012 and 95.9 percent in 2011. Excluding the
2013 reserve adjustments in our life insurance product lines within the Unum US and Colonial Life segments, the benefit ratio for 2013 was
86.4 percent, and excluding the 2011 reserve adjustments in our Closed Block segment, the benefit ratio for 2011 was 85.9 percent. The
underlying risk results in 2013 for each of our principal operating business segments, as well as for the majority of our product lines within
those segments, were favorable or consistent with 2012. The year-over-year increase in the benefit ratio for 2012 relative to the level of
2011 was primarily attributable to adverse risk results in our Unum UK group life line of business and in our Closed Block long-term care line
of business. Risk results in our Unum US segment for 2012 were generally consistent with the level reported in 2011, and the benefit ratio
for Colonial Life was only slightly elevated in 2012 compared to 2011. Further discussion of our line of business risk results for each of our
segments is included in “Segment Results” as follows.
Interest and debt expense for 2013 was higher than 2012 due primarily to the issuance of $250.0 million of debt in August 2012, offset
partially by lower interest expense on our floating rate debt and the purchase and retirement of the debt held by Tailwind Holdings, LLC
(Tailwind Holdings) in January 2013. Interest and debt expense for 2012 was slightly higher than 2011 due primarily to the issuance of
$250.0 million of debt in August 2012, partially offset by the maturity of $225.1 million of debt in March 2011.
The deferral of acquisition costs in 2013 was generally consistent with 2012. The deferral increased in 2012 compared to 2011, with
continued growth in certain of our product lines and the associated increase in deferrable expenses more than offsetting the lower level
of deferrable costs in product lines with lower growth.
The amortization of acquisition costs was higher year-over-year in both 2013 and 2012 due to continued growth in the level of the
deferred asset for certain of our product lines and the prospective unlocking for expected future experience relative to assumptions for our
interest-sensitive life products. We also experienced a higher level of policy terminations relative to assumptions for certain issue years
within some of our Unum US supplemental and voluntary product lines during 2013. At December 31, 2011, we determined that our
long-term care deferred acquisition costs were not recoverable, and we recognized an impairment charge at that time. Further discussion
of deferred acquisition costs and amortization by product line for each of our segments is included in “Segment Results” as follows.