Unum 2007 Annual Report Download - page 58

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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
56 Unum 2007 Annual Report
Foreign Currency Translation
The functional currency of Unum UK is the British pound sterling. Unum UK’s premiums, net investment income, claims, and expenses
are received or paid in pounds, and we hold pound denominated assets to support Unum UK’s pound denominated policy reserves and
liabilities. We translate Unum UK’s pound-denominated financial statement items into dollars for our consolidated financial reporting.
We translate income statement items using an average exchange rate for the reporting period, and we translate balance sheet items
using the exchange rate at the end of the period. We report unrealized foreign currency translation gains and losses in accumulated
other comprehensive income in our consolidated balance sheets.
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, translating pounds into dollars decreases current year results relative to the prior
year. In periods when the pound strengthens, translating into dollars increases current year results in relation to the prior year.
Year Ended December 31
(in millions of pounds) 2007 % Change 2006 % Change 2005
Operating Revenue
Premium Income
Group Long-term Disability £ 375.9 8.5)% £ 346.3 8.1)% £ 320.4
Group Life 88.5 (4.2) 92.4 2.4 90.2
Individual Disability 19.1 7.3 17.8 (15.2) 21.0
Total Premium Income 483.5 5.9 456.5 5.8 431.6
Net Investment Income 100.0 5.8 94.5 11.4 84.8
Other Income 1.6 N.M. — (100.0) 3.3
Total 585.1 6.2 551.0 6.0 519.7
Benefits and Expenses
Benefits and Change in Reserves for Future Benefits
286.8 (4.5) 300.2 0.1 299.9
Commissions 33.5 24.1 27.0 (12.9) 31.0
Deferral of Acquisition Costs (20.6) 10.2 (18.7) — (18.7)
Amortization of Deferred Acquisition Costs 24.7 44.4 17.1 44.9 11.8
Other Expenses 91.6 6.4 86.1 (6.9) 92.5
Total 416.0 1.0 411.7 (1.2) 416.5
Operating Income Before Income Tax
and Net Realized Investment Gains and Losses £ 169.1 21.4 £ 139.3 35.0 £ 103.2
Weighted Average Pound/Dollar Exchange Rate 2.004 1.851 1.819
N.M. = not a meaningful percentage