Unum 2006 Annual Report Download - page 170

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
152
Note 15 - Commitments and Contingent Liabilities - Continued
additional costs is much less certain than our best estimate and uses assumptions, among the range of reasonably
possible outcomes, which are more favorable to us at the lower end of the cost range and less favorable to us at the
upper end of the range. We continue to monitor our claim reassessment experience and review the adequacy of the
associated reserves on a quarterly basis. Unfavorable experience relative to our revised assumptions could result in
additional claim reassessment costs above our current accrual and in excess of our reasonably possible range.
On March 29, 2006 we received a subpoena from the Securities and Exchange Commission (SEC) seeking
information regarding certain reinsurance transactions and transactions regarding “Non Traditional Products”
entered into after January 1, 2002. We are cooperating fully with the SEC in its investigation.
These and other regulatory examinations or investigations could result in, among other things, changes in business
practices, including changes in broker compensation and related disclosure practices, changes in the use and
oversight of reinsurance, changes in governance and other oversight procedures, fines, and other administrative
action.
Such results, singly or in combination, could injure our reputation, cause negative publicity, adversely affect our
debt and financial strength ratings, or impair our ability to sell or retain insurance policies, thereby adversely
affecting our business, and potentially materially adversely affecting our consolidated results of operations in a
period, depending on the results of operations for the particular period. Determination by regulatory authorities that
the Company or its insurance subsidiaries have engaged in improper conduct could also adversely affect our defense
of various lawsuits described herein.
Other Claim Litigation
We and our insurance company subsidiaries, as part of our normal operations in managing disability claims, are
engaged in claim litigation where disputes arise as a result of a denial or termination of benefits. Most typically
these lawsuits are filed on behalf of a single claimant or policyholder, and in some of these individual actions
punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims. For our general
claim litigation, we maintain reserves based on experience to satisfy judgments and settlements in the normal
course. We expect that the ultimate liability, if any, with respect to general claim litigation, after consideration of
the reserves maintained, will not be material to our consolidated financial condition. Nevertheless, given the
inherent unpredictability of litigation, it is possible that an adverse outcome in certain claim litigation involving
punitive damages could, from time to time, have a material adverse effect on our consolidated results of operations
in a period, depending on the results of operations for the particular period. We are unable to estimate a range of
reasonably possible punitive losses.
From time to time class action allegations are pursued where the claimant or policyholder purports to represent a
larger number of individuals who are similarly situated. Since each insurance claim is evaluated based on its own
merits, there is rarely a single act or series of actions, which can properly be addressed by a class action.
Nevertheless, we monitor these cases closely and defend ourselves appropriately where these allegations are made.
Broker Compensation, Quoting Process, and Related Matters
Examinations and Investigations
In June 2004, we received a subpoena from the NYAG requesting documents and information relating to
compensation arrangements between insurance brokers or intermediaries and us and our subsidiaries.
On November 1, 2006, we entered into a settlement agreement with the NYAG in the form of an assurance of
discontinuance that provides for a national restitution fund of $15.5 million and a fine of $1.9 million, the costs of
which were recorded in the third quarter of 2006. That restitution fund should be fully distributed by year end 2007.