Unum 2013 Annual Report Download - page 133

UNUM 2013 ANNUAL REPORT / 131
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) 2013 2012 2011
Balance at January 1 $24,567.1 $24,586.5 $24,339.4
Less Reinsurance Recoverable 2,006.0 2,042.6 2,028.2
Net Balance at January 1 22,561.1 22,543.9 22,311.2
Incurred Related to
Current Year 4,751.9 4,946.2 4,684.4
Prior Years
Interest 1,230.0 1,247.6 1,262.9
All Other Incurred (44.7) (175.7) 209.1
Foreign Currency 41.2 101.1 (10.9)
Total Incurred 5,978.4 6,119.2 6,145.5
Paid Related to
Current Year (1,657.3) (1,715.4) (1,588.6)
Prior Years (4,419.4) (4,386.6) (4,324.2)
Total Paid (6,076.7) (6,102.0) (5,912.8)
Net Balance at December 31 22,462.8 22,561.1 22,543.9
Plus Reinsurance Recoverable 2,072.8 2,006.0 2,042.6
Balance at December 31 $24,535.6 $24,567.1 $24,586.5
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 2013, 2012, and 2011.
“Incurred Related to Prior Years — All Other Incurred” for the years shown in the preceding chart includes the reserve adjustments as
discussed in the following paragraphs, which create variances year over year. Excluding those adjustments, the variability exhibited year over
year is caused primarily by the level of claim resolutions in the period relative to the long-term expectations reflected in the reserves. 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. Claim resolution rates for 2013 in the Unum US
group long-term disability product line were less favorable than the level of 2012, though still above the level of our long-term assumptions.
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 the fourth quarter of 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.