Unum 2009 Annual Report Download - page 121

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119
Unum 2009 Annual Report
Note 6. Liability for Unpaid Claims and Claim Adjustment Expenses
Changes in the liability for unpaid claims and claim adjustment expenses are as follows:
(in millions of dollars) 2009 2008 2007
Balance at January 1 $24,419.0 $24,790.0 $24,324.4
Less Reinsurance Recoverable 2,226.3 2,249.8 2,257.3
Net Balance at January 1 22,192.7 22,540.2 22,067.1
Acquisition or Recapture of Business — Note 12 — 44.2 204.3
Incurred Related to
Current Year 4,433.3 4,569.4 4,836.9
Prior Years
Interest 1,285.4 1,281.2 1,199.9
Incurred for Claim Reassessment Process — — 65.8
All Other Incurred (34.7) 144.7 174.3
Foreign Currency 206.7 (697.0) 33.7
Total Incurred 5,890.7 5,298.3 6,310.6
Paid Related to
Current Year (1,451.6) (1,412.8) (1,460.5)
Prior Years (4,225.4) (4,277.2) (4,581.3)
Total Paid (5,677.0) (5,690.0) (6,041.8)
Net Balance at December 31 22,406.4 22,192.7 22,540.2
Plus Reinsurance Recoverable 2,179.3 2,226.3 2,249.8
Balance at December 31 $24,585.7 $24,419.0 $24,790.0
The majority of the net balances are related to disability claims with long-tail payouts on which interest earned on assets backing
liabilities is an integral part of pricing and reserving. Interest accrued on prior year reserves has been calculated on the opening reserve
balance less one-half year’s cash payments at our average reserve discount rate used during 2009, 2008, and 2007.
Our “Incurred Related to Prior Years” for 2007 includes adjustments to reserves for our claim reassessment process. We entered into
settlement agreements with various state insurance regulators during 2004 and 2005. In connection with these settlement agreements,
we increased our disability claim reserves $65.8 million in 2007 to reflect our revised estimate for costs associated with the claim
reassessment process. “Paid Related to Prior Years” includes $248.0 million in 2007 for these reserve charges.
“Incurred Related to Prior Years — All Other Incurred” declined in 2009 relative to the prior two years. The decrease relates primarily to
an increased rate of claim recoveries for our group long-term disability and individual disability — recently issued lines of business in Unum
US and in our Individual Disability — Closed Block segment. Claim resolution rates are very sensitive to operational and environmental
changes and can be volatile over short periods of time. During 2009, we continued to improve the operating effectiveness of our Unum US
segment and Individual Disability — Closed Block segment claims management performance. Our claims management performance during
2009 for Unum US group long-term disability exceeded our long-term assumptions in regard to claim resolution rates. For the Unum US
individual disability — recently issued line of business and the Individual Disability — Closed Block segment, the claims management
performance in 2009 improved relative to 2008. Our claim resolution rate assumption used in determining reserves is our expectation of
the resolution rate we will experience over the life of the block of business and will vary from actual experience in any one period, both
favorably and unfavorably.