Unum 2013 Annual Report Download - page 53

UNUM 2013 ANNUAL REPORT / 51
Year Ended December 31, 2012 Compared with Year Ended December 31, 2011
Unum US sales were higher in 2012 compared to 2011, with growth in each of our product lines and in each of our major market
segments. Sales in our group core market segment were higher in 2012 relative to 2011, 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 2012 was 1.9 percent higher than the
number of new accounts added during 2011.
Sales in our group large case market segment were higher in 2012 compared to 2011, with increases in each of the product lines
within this market segment. We continued our disciplined and opportunistic approach to sales growth in the large case market during 2012,
and although the level of sales in this market segment was higher than in 2011, our new business pricing was within our guidelines. Our
sales mix in 2012 was approximately 69 percent core market and 31 percent large case market, generally consistent with 2011.
Sales of voluntary benefits were higher in 2012 compared to 2011 due primarily to strong large case sales and increases in sales to
both new and existing customers. The number of new accounts added in the voluntary benefits product line was 6.9 percent lower in 2012
than the number of new accounts added during 2011. Sales in our individual disability — recently issued line of business were 2.5 percent
higher in 2012 compared to 2011 due primarily to higher sales to existing customers.
Segment Outlook
We believe that premium growth, particularly growth within existing customer accounts, will continue to be pressured during
2014 by the weak pace of economic growth, low levels of employment growth, the competitive environment, and the distraction caused
by political instability and the implementation of healthcare reform. Although we expect to achieve marginal year-over-year growth in
premium income during 2014, opportunities for further premium 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 call
premiums and other types of miscellaneous net investment income. The low interest rate environment and the tightening of credit spreads
continue to place near-term pressure on our profit margins by impacting net investment income yields 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 2012 and will continue with these pricing levels on new and renewal business throughout 2014. We anticipate
that the 2014 benefit ratio for our group disability product line will be slightly below the level of 2013. Our amortization of deferred
acquisition costs may be unfavorably impacted, particularly in our voluntary benefits product line, by higher than expected policy
terminations. We believe future profit margin improvement is achievable, driven primarily by our continued product mix shift, expense
efficiencies, and consistent operating effectiveness.
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. 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 remain confident that our strategy of focusing on protecting consumers, broadening client relationships, and building collaborative
partnerships will enable us to achieve our long-term financial objectives. We continue to see future growth opportunity based on employee
choice, defined employer funding, superior service, and effective communication. Our focused offerings, risk management discipline,
consistent benefits performance, and expense management have enabled us to deliver earnings growth. We believe we will reach our