Unum 2009 Annual Report Download - page 28

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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Unum
2009
Claim reserves supporting the Unum US group life and accidental death and dismemberment products represent approximately 3.7 percent
of our total claim reserves at December 31, 2009. Claim reserves for these products are related primarily to death claims reported but not
yet paid, IBNR death claims, and a liability for waiver of premium benefits. The death claim reserve is based on the actual face amount to
be paid, the IBNR reserve is calculated using the count and severity method, and the waiver of premium benefits reserve is calculated
using the tabular reserve methodology.
Claim reserves supporting our Unum UK segment represent approximately 9.2 percent of our total claim reserves at December 31, 2009,
and are calculated using generally the same methodology that we use for Unum US disability and group life reserves. The assumptions
used in calculating claim reserves for this line of business are based on standard United Kingdom industry experience, adjusted for Unum
UK’s own experience.
The majority of the Colonial Life segment lines of business have short-term benefits, which have less estimation variability than our
long-term products because of the shorter claim payout period. Our claim reserves for Colonial Life’s lines of business, which approximate
1.3 percent of our total claim reserves at December 31, 2009, are predominantly determined using the incurred loss development method
based on our own experience. The incurred loss development method uses the historical patterns of payments by loss date to predict
future claim payments for each loss date. Where the incurred loss development method may not be appropriate, we estimate the incurred
claims using an expected claim cost per policy or other measure of exposure. The key assumptions for claim reserves for the Colonial Life
lines of business are: (1) the timing, rate, and amount of estimated future claim payments; and (2) the estimated expenses associated with
the payment of claims.
The following table displays policy reserves, incurred claim reserves, and IBNR claim reserves by major product line, with the summation
of the policy reserves and claim reserves shown both gross and net of the associated reinsurance recoverable. Incurred claim reserves
represent reserves determined for each incurred claim and also include estimated amounts for litigation expenses and other expenses
associated with the payment of the claims as well as provisions for claims which we estimate will be reopened for our long-term care
products. IBNR claim reserves include provisions for incurred but not reported claims and a provision for reopened claims for our disability
products. The IBNR and reopen claim reserves for our disability products are developed and maintained in aggregate based on historical
monitoring that has only been on a combined basis.