Unum 2008 Annual Report Download - page 30

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Effective January 1, 2007, we adopted the provisions of Statement of Financial Accounting Standards No. 155 (SFAS 155), Accounting
for Certain Hybrid Financial Instruments, an amendment of Statement of Financial Accounting Standards Nos. 133 (SFAS 133) and 140
(SFAS 140). SFAS 155: (a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that
otherwise would require bifurcation; (b) claries which interest-only strips and principal-only strips are not subject to the requirements of
SFAS 133; (c) establishes a requirement to evaluate benecial interests in securitized nancial assets to identify interests that are freestanding
derivatives or that are hybrid nancial instruments that contain an embedded derivative requiring bifurcation; (d) claries that concentrations
of credit risk in the form of subordination are not embedded derivatives; and, (e) eliminates restrictions on a qualifying special-purpose entity’s
ability to hold passive derivative financial instruments that pertain to beneficial interests that are or contain a derivative financial instrument.
The adoption of SFAS 155 did not have a material effect on our financial position or results of operations.
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Legal and Regulatory Issues
Revised Claim Reassessment Reserve Estimate
In the first quarter of 2006, we completed an analysis of our assumptions related to the reserves we established for our claim
reassessment process. Our analysis was based on preliminary data as of the end of the first quarter of 2006, when actual results to date
were considered credible enough to enable us to update our initial expectations of costs related to the reassessment process. We concluded
that a change in our initial assumptions, primarily related to the number of claimants for whom payments will continue because the claimant
remains eligible for disability payments, was warranted. We based our conclusion and our revised estimate on the information that existed
at that time, which was the actual cost related to approximately 20 percent of the projected ultimate total number of claims expected to be
reassessed. The characteristics, profile, and cost of those initial 20 percent of claims were more statistically credible than the information on
which we based the initial charges in 2004 and 2005. Based on our analysis, in the first quarter of 2006 we recorded a charge of $86.0 million
before tax, or $55.9 million after tax, to reflect our then current estimate of future obligations for benefit costs for claims reopened in the
reassessment. The first quarter charge decreased 2006 before-tax operating results for our Unum US group disability line of business
$72.8 million and our Individual Disability — Closed Block segment $13.2 million.
In the third quarter of 2006, we increased our provision for the cost of the reassessment process $325.4 million before tax and
$211.5 million after tax based on changes in our emerging experience for the number of decisions being overturned by the reassessment
process and the average cost per reassessed claim. The revised third quarter estimate was based on the cost of approximately 55 percent of
the projected ultimate total number of claims expected to be reassessed. The third quarter charge was comprised of $310.4 million to reflect
our revised estimate of future obligations for benefit costs for claims reopened in the reassessment and $15.0 million for additional incremental
direct claim reassessment operating expenses because of the additional time then estimated to complete the process. Our best estimate
of $310.4 million for the reopened claims assumed that the nature and characteristics of the approximately 45 percent remaining claims
estimated to be reassessed at that time would be similar to the average profile of the 55 percent already reviewed at that time. The third
quarter charge decreased before-tax operating results for our Unum US group disability line of business $291.4 million and our Individual
Disability — Closed Block segment $34.0 million.
Regulatory Investigations
Beginning in 2004, several of our insurance subsidiaries’ insurance regulators requested information relating to the subsidiaries’
policies and practices on one or more aspects of broker compensation, quoting insurance business, and related matters. Additionally,
we responded to investigations about certain of these same matters by state attorneys general and the U.S. Department of Labor (DOL).
Following highly publicized litigation involving the alleged practices of a major insurance broker, the NAIC has undertaken to provide a
uniform Compensation Disclosure Amendment to the Producer Licensing Model Act that can be adopted by states in an effort to provide
uniform guidance to insurers, brokers, and customers relating to disclosure of broker compensation. We expect there to be continued
uncertainty surrounding this matter until clearer regulatory guidelines are established.