Unum 2014 Annual Report Download - page 131

UNUM • 2014 ANNUAL REPORT 129
2014 Long-term Care Reserve Increase
Policy reserves for our long-term care block of business are determined using the gross premium valuation method and, prior to
the fourth quarter of 2014, were valued based on assumptions established as of December 31, 2011, the date of the initial loss recognition.
Gross premium valuation assumptions do not change after the date of loss recognition unless reserves are again determined to be deficient.
We undertake a review of policy reserve adequacy annually during the fourth quarter of each year, or more frequently if appropriate, using
best estimate assumptions as of the date of the review.
Included in our fourth quarter of 2014 review was an analysis of our reserve assumptions, including those for the discount rate,
mortality and morbidity rates, persistency, and premium rate increases. Our analysis of reserve discount rate assumptions considered the
continued historic low interest rate environment, future market expectations, and our view of future portfolio yields. The assumptions we
established in 2011 were set at a level that we estimated would be sustainable in a low interest rate environment for three to five years,
with improvements in market yields beginning after the third year. Since that time, however, interest rates have continued to hover near
historic lows, and credit spreads have tightened. Our assumption update for mortality incorporates the last three years of Company-specific
experience and emerging trends as well as industry data, where available and appropriate, and reflects improvements in life expectancies
beyond what was initially anticipated in 2011. Our morbidity assumptions were updated to reflect trends from our own emerging Company
experience in claim incidence and terminations, as well as trends based on available and appropriate industry data and studies. Our premium
rate increase assumptions were updated to reflect progress-to-date and our on-going rate increase strategy.
Based on our analysis, as of December 31, 2014 we lowered the discount rate assumption to reflect the low interest rate environment
and our revised expectation of future investment portfolio yield rates. Our revised assumptions anticipate the low interest rate environment
persisting for the next three to five years, with a return to more historical averages over the following five year period. We updated our
mortality assumptions to reflect emerging experience due to an increase in life expectancies which increases the ultimate number of
people who will utilize long-term care benefits and also lengthens the amount of time a claimant may receive long-term care benefits.
We changed our morbidity assumptions to reflect emerging industry experience as well as our own Company experience, and we updated
our projection of future premium rate increase approvals. Using our revised best estimate assumptions, as of December 31, 2014 we
determined that our policy and claim reserves should be increased $698.2 million to reflect our current estimate of future benefit
obligations. Of this amount, $85.8 million was related to claim reserves, which can be attributed to prior year incurred claims, thereby
impacting the results shown in the preceding chart.
2013 Unclaimed Death Benefits Reserve Increase
Beginning in 2011, a number of state regulators began requiring insurers to cross-check specified insurance policies with the
Social Security Administration’s Death Master File to identify potential matches. If a potential match was identified, insurers were
requested to determine if benefits were due, locate beneficiaries, and make payments where appropriate. We initiated this process where
requested, and in 2012 we began implementing this process in all states on a forward-looking basis. In addition to implementing this on
a forward-looking basis, in 2013 we began an initiative to search for potential claims from previous years. During 2013, we completed our
assessment of benefits which we estimate will be paid under this initiative, and as such, established $95.5 million of additional claim
reserves for payment of these benefits. Claim reserves were increased $49.1 million for Unum US group life, $26.3 million for Unum US
voluntary life, and $20.1 million for Colonial Life voluntary life. The reserves established were attributed to prior year incurred claims,
thereby impacting the results shown in the preceding chart.