Unum 2013 Annual Report Download - page 56

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
54 / UNUM 2013 ANNUAL REPORT
Year Ended December 31, 2013 Compared with Year Ended December 31, 2012
Premium income was lower in 2013 compared to 2012 due primarily to reinsurance agreements we entered into effective January 1,
2013 to cede an additional portion of our group life business. The reinsurance agreements significantly decreased premium income and benefit
payments for group life during 2013 and also reduced volatility in this line of business. Premium income in 2013 was also unfavorably
impacted by continued pressure on persistency resulting from the initiation of premium rate increases, partially offset by an increase in
premium income as a result of rate increases in existing customer accounts.
Net investment income declined in 2013 compared to 2012 due primarily to decreases in the yield on invested assets and in the
level of invested assets. We also reported lower income from inflation index-linked bonds which we invest in to support the claim reserves
associated with certain of our group policies that provide for inflation-linked increases in benefits.
Group long-term disability risk results were unfavorable in 2013 compared to 2012 due primarily to lower claim recoveries. Group life
risk results were favorable in 2013 compared to 2012 due primarily to lower mortality rates on the retained business. Supplemental risk
results were favorable in 2013 compared to 2012 due to lower claim incidence rates for the group critical illness product line.
Commissions and deferral of acquisition costs were lower in 2013 compared to 2012 due to expenses ceded under the group life
reinsurance agreements and a lower level of sales in 2013. The amortization of deferred acquisition costs and the other expense ratio
were generally consistent in 2013 compared to the prior year.
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 were unfavorably impacted by
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 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 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.
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 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.