Unum 2007 Annual Report Download - page 62

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
60 Unum 2007 Annual Report
Year Ended December 31, 2007 Compared with Year Ended December 31, 2006
Growth in premium income was attributable primarily to current and prior period sales growth and stable persistency. Net investment
income increased in 2007 in comparison to the prior year due primarily to growth in the level of assets supporting these lines of business.
The benefit ratio for this segment decreased in 2007 in comparison to the prior year due primarily to favorable risk experience in the
accident, sickness, and disability line of business as well as the life line of business. The improvement in the accident, sickness, and disability
line of business resulted from the continued favorable experience related to several new products introduced in 2004. In addition, individual
short-term disability claim incidence and average claim duration decreased in 2007 compared to the prior year, while the average claim
payment was higher in 2007 relative to the prior year. For accident products, the claim incidence rate decreased in 2007 compared to
the prior year, while the average claim payment remained constant in 2007 relative to the prior year. The life line of business reported
a decrease in the rate of incurred claims for 2007, although the aggregate claim expense increased due to the larger block of business.
The cancer and critical illness product line also reported a slightly lower benefit ratio in 2007 relative to the prior year.
Although we continue to focus on expense management, the other expense ratio for 2007 increased in comparison to the prior year
due primarily to our investment in brand and product promotion and the development of additional product offerings. Also, during 2006
we reported a one-time adjustment to commissions and operating expenses that increased reported commissions and reduced other
expenses for that year.
Year Ended December 31, 2006 Compared with Year Ended December 31, 2005
Growth in premium income was attributable primarily to current and prior period sales growth and stable persistency, partially offset
by the lapsing of policies during the first quarter of 2006 for policyholders in hurricane-impacted areas. Net investment income decreased
in 2006 in comparison to 2005 due primarily to the receipt of interest during 2005 on a bond previously in default.
The benefit ratio for this segment decreased in 2006 in comparison to 2005 due primarily to favorable risk experience in the accident,
sickness, and disability line of business. The improvement resulted from underwriting actions taken in 2004 and 2005 as well as the
introduction of several new products in 2004. Sales of these new products increased significantly during 2006. Also favorably impacting
year-over-year comparisons was the first quarter of 2006 release of reserves related to the lapsed policies in the hurricane-impacted
areas and a $3.5 million reserve charge in 2005 related to cancer litigation. In addition, individual short-term disability claim incidence and
average claim duration decreased in 2006 compared to 2005, while the average indemnity on claims was higher in 2006 relative to 2005.
For accident, the claim incidence rate decreased in 2006 relative to 2005, but the average claim payment increased over that reported for
2005. These positive trends were slightly offset by an increase in the claim incidence rate as well as the average claim payment during
2006 for our hospital income product. For cancer, the incidence increased in 2006 relative to 2005, but the incurred loss ratio decreased
due to the introduction of a new cancer product. The life line of business reported a slight increase in the number of paid claims in 2006
relative to 2005 and an increase in the average claim payment.
The other expense ratio for 2006 decreased in comparison to 2005 due primarily to our expense management focus and the
increase in premium income as well as the commission and expense adjustment noted above.