Unum 2013 Annual Report Download - page 25

UNUM 2013 ANNUAL REPORT / 23
2011 Claim Reserve Increase for Individual Disability Closed Block Business
Claim reserves supporting our individual disability closed block of business are calculated using assumptions based on actual
experience believed to be currently appropriate. Claim reserves are subject to revision as current claim experience emerges and alters our
view of future expectations. Claim resolution rates, which measure the resolution of claims from recovery, deaths, settlements, and benefit
expirations, are very sensitive to operational and environmental changes and can be volatile. 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. We are now able,
with a higher degree of confidence, to assess our own experience for older ages in our long duration lifetime claim block as our data has
become credible. There is very little industry experience for lifetime disability benefits, as our insurance companies were the primary
disability companies in the insurance industry at the time lifetime disability benefits were offered. These benefits were offered during the
1980s and 1990s, recent enough such that claimants are just reaching the older ages and providing us with data to build our claim
experience base. Emerging experience indicates a longer life expectancy for our older age, longer duration disabled claimants, which
lengthens the time a claimant receives disability benefits. As a result of this experience, as of December 31, 2011 we adjusted our mortality
assumption within our claim resolution rate assumption and, as a result, increased our claim reserves for our individual disability closed
block of business by $183.5 million and decreased net income $119.3 million.
Outlook for 2014
We believe our disciplined approach to providing financial protection products at the workplace puts us in a position of strength as we
seek to capitalize on the growing and largely unfilled need for our products and services. While we anticipate the environment for 2014 will
be somewhat similar to modestly improving from 2013, with below-average economic growth, relatively low interest rates, and continued
political uncertainty, we have strategies in place which we believe will help us navigate this environment.
We believe the need for our products and services remains strong, and we intend to continue protecting our solid margins and returns
through our pricing and risk actions. During 2014, we will continue to invest in our infrastructure and our employees, with a focus on quality
and simplification of processes and product offerings. Our strategy will be centered on maintaining a strong customer focus while providing
an innovative product portfolio of financial protection choices to deepen employee coverages, broaden employer relationships, and open
new markets. We believe that consistent operating results, combined with the implementation of strategic initiatives and the effective
deployment of capital, should allow us to meet our long-term financial objectives.
Critical Accounting Estimates
We prepare our financial statements in accordance with GAAP. The preparation of financial statements in conformity with GAAP
requires us to make estimates and assumptions that affect amounts reported in our financial statements and accompanying notes.
Estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported
and disclosed in our financial statements. The accounting estimates deemed to be most critical to our financial position and results of
operations are those related to reserves for policy and contract benefits, deferred acquisition costs, valuation of investments, pension and
postretirement benefit plans, income taxes, and contingent liabilities. For additional information, refer to our significant accounting policies
in Note 1 of the “Notes to Consolidated Financial Statements” contained herein.