Unum 2013 Annual Report Download - page 134

132 / UNUM 2013 ANNUAL REPORT
Notes To Consolidated Financial Statements
2013 Group Life Waiver of Premium Benefit Reserve Reduction
Within our Unum US segment, we offer group life insurance coverage which consists primarily of renewable term life insurance and
includes a provision for waiver of premium, if disabled. The group life waiver of premium benefit (group life waiver) provides for continuation
of life insurance coverage when an insured, or the employer on behalf of the insured, is no longer paying premium because the employee
is not actively at work due to a disability. The group life waiver claim reserve is the present value of future anticipated death benefits
reflecting the probability of death while remaining disabled. Claim reserves are calculated using assumptions based on past experience
adjusted for current trends and any other factors that would modify past experience and are subject to revision as current claim experience
emerges and alters our view of future expectations. The two fundamental assumptions in the development of the group life waiver reserve
are mortality and recovery. Our emerging experience and that which continues to emerge within the industry indicate an increase in life
expectancies, which decreases the ultimate anticipated death benefits to be paid under the group life waiver benefit. Emerging experience
also reflects an improvement in claim recovery rates, which also lessens the likelihood of payment of a death benefit while the insured
is disabled. During the fourth quarter of 2013, we completed a review of our assumptions and modified our mortality and claim recovery
assumptions for our Unum US group life waiver reserves and, as a result, reduced claim reserves by $85.0 million. Of this amount,
approximately $78.0 million was attributed to prior year incurred claims, thereby impacting the results shown in the preceding chart.
2011 Long-term Care Loss Recognition
We generally perform loss recognition tests on our deferred acquisition costs and policy reserves in the fourth quarter of each year,
but more frequently if appropriate, using best estimate assumptions as of the date of the test without a provision for adverse deviation.
Included in our analysis for the long-term care product line during the fourth quarter of 2011 was a review of our reserve discount rate,
mortality, and morbidity assumptions. Our analysis of reserve discount rate assumptions considered the significant decline in long-term
interest rates which occurred late in 2011. We also considered an updated industry study for long-term care experience which was made
available mid-year 2011 from the Society of Actuaries. Our analysis of this study, which was completed during the fourth quarter of 2011,
showed that lower termination rates than we had previously assumed were beginning to emerge in industry and in our own company
experience. Based on our analysis, as of December 31, 2011 we lowered the discount rate assumption to reflect the low interest rate
environment and our expectation of future investment portfolio yield rates. We also changed our mortality assumptions to reflect emerging
experience due to an increase in life expectancies which increases the ultimate number of people who will utilize long-term care benefits
and also lengthens the amount of time a claimant receives long-term care benefits. We changed our morbidity assumptions to reflect
emerging industry experience as well as our own company experience. While our morbidity experience is still emerging and is not fully
credible, we modified our assumptions to align more closely with the recently published industry study. Using our revised best estimate
assumptions, as of December 31, 2011 we determined that deferred acquisition costs of $196.0 million were not recoverable and that our
policy and claim reserves should be increased by $573.6 million to reflect our then current estimate of future benefit obligations. Of this
amount, $248.1 million was related to claim reserves, and approximately $215.0 million was attributed to prior year incurred claims,
thereby impacting the results shown in the preceding chart.