Premiums from the Company’s other core group employee benefit products were $1,017.7 million and $1,034.6 million in 2010 and 2009, respectively. During 2010 and 2009, premiums from the Company’s group life products were $388.2 million and $393.2 million, respectively, and premiums from the Company’s group disability products were $542.4 million and $560.4 million, respectively. Premiums from the Company’s turnkey disability business were $49.5 million and $54.0 million in 2010 and 2009, respectively. New business production for the Company’s other core group employee benefit products increased 4% to $238.9 million in 2010 from $230.4 million in 2009. The level of production achieved from these other core group employee products reflects the Company’s focus on the small case niche (insured groups of 10 to 500 individuals). The payments received by the Company in connection with LPT’s, which are episodic in nature and are recorded as liabilities rather than as premiums, were $16.0 million in 2010 as compared to $40.0 million in 2009.
Deposits from the Company’s asset accumulation products, consisting of annuity sales, increased 52% to $377.4 million in 2010 from $248.6 million in 2009. The increase in deposits is attributable to, among other things, particularly advantageous conditions for the Company in the fixed annuity marketplace during the second half of 2010 due to various competitors having either terminated their marketing of comparable fixed annuity products or experienced ratings downgrades. Deposits from the Company’s asset accumulation products are recorded as liabilities rather than as premiums. The Company is continuing to maintain its discipline in setting the crediting rates offered on its asset accumulation products in an effort to achieve its targeted interest rate spreads on these products.
The Company manages the composition of its borrowed capital by considering factors such as the ratio of borrowed capital to total capital, its and its insurance subsidiaries’ current and future capital requirements, the interest rate environment and other market conditions. At December 31, 2011, a hypothetical 10% decrease in market interest rates would cause a corresponding $2.7 million increase in the fair value of the 2020 Senior Notes. Because interest expense on borrowings under the Credit Agreement that were outstanding at December 31, 2011 would have fluctuated as prevailing interest rates changed, changes in market rates would not have materially affected their fair value. At December 31, 2011, a hypothetical 10% decrease in market interest rates would cause a corresponding $5.9 million increase in the fair value of the 2007 Junior Debentures as compared to an increase of $8.8 million at December 31, 2010.
The most significant assumptions made in the estimation process for unpaid claims and claim expenses for the Company’s property and casualty insurance products are the trend in loss costs, the expected frequency and severity of claims, the expected timing of claims payments, changes in the timing of the reporting of losses from the loss date to the notification date, and expected costs to settle unpaid claims. Other assumptions include that the coverages under these insurance products will not be expanded by future legislative action or judicial interpretation and that extraordinary classes of losses not previously in existence will not arise in the future. The assumptions vary based on the year in which the claim is incurred. At December 31, 2011, disability and primary and excess workers’ compensation reserves for unpaid claims and claim expenses with a carrying value of $1,778.2 million have been discounted at a weighted average rate of 5.3%, with the rates ranging from 1.5% to 7.5%. For disability claims incurred on and after July 1, 2010, the Company reduced the discount rate to 4.75% from the 5.5% rate previously utilized. Disability reserves for unpaid claims and claim expenses are discounted using interest rate assumptions based upon projected portfolio yield rates for the assets supporting the liabilities. The assets selected to support these liabilities produce cash flows that are intended to match the timing and amount of anticipated claim and claim expense payments. Excess and primary workers’ compensation claim reserves are discounted using interest rate assumptions based on the risk-free rate of return for U.S. Government securities with a duration comparable to the expected duration and payment pattern of the claims. The rates used to discount reserves are determined annually. The level of the rate utilized to discount reserves in a particular period directly impacts the level of the reserves established for such period. For example, a 25 basis point increase in the discount rates the Company applied to disability and primary and excess workers’ compensation claims incurred in 2011 would have decreased the amount of the reserves it established with respect to such claims by approximately $5.5 million, and a 25 basis point decrease in such rates would have increased the amount of such reserves by $4.9 million. In both cases, discount rate changes of this type and magnitude would be intended to reasonably reflect corresponding changes in market interest rates. These levels of change to the Company’s discount rate would have increased, in the first case, or decreased, in the second case, its 2011 net income by $3.6 million and $3.2 million, respectively.
The Company also invests in certain investment funds organized as limited partnerships and limited liability companies which invest in various financial instruments. For a discussion of the Company’s repositioning of its investment portfolio to reduce the level of investments of this type, see “Overview”. These investments are reflected in the Company’s financial statements under the equity method; accordingly, positive or negative changes in the value of the investees’ underlying investments are included in net investment income. For this purpose, the Company estimates the values of its investments in these entities based on values provided by their managers. The Company believes that its estimates reasonably reflect the values of its investments in these fund entities; however, there can be no assurance that such values will ultimately be realized upon liquidation of such investments, which generally can occur only through a redemption or withdrawal from the various fund entities, since no trading market exists for these investments. Such redemptions and withdrawals are generally available only at specified intervals upon the giving of specified prior notice to the applicable entity.
The information required by Item 8 is included in this Form 10-K beginning on page 59 of this Form 10-K.