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UNUM 2013 ANNUAL REPORT / 29
Trends in Key Assumptions
Generally, we do not expect our mortality and morbidity claim incidence trends or our persistency trends to change significantly in the
short-term, and to the extent that these trends do change, we expect those changes to be gradual over a longer period of time. We have
historically experienced an increase in our group long-term disability morbidity claim incidence trends during and following a recessionary
period, particularly in our Unum US operations. During 2012 and 2011, claim incidence rates for Unum US group long-term disability were
slightly elevated relative to the level of 2010, but in 2013 incidence rates improved slightly, returning to the level of 2010. We expect that
claim incidence trends for Unum US group long-term disability may continue to somewhat follow general economic conditions and
demographics of the general U.S. workforce.
During 2013 and 2012, claims incidence was elevated for our Closed Block long-term care line of business as compared to the
long-term assumptions we established at the time of loss recognition in 2011. We view the elevated incidence as temporary in nature.
See “2011 Long-term Care Strategic Review” contained herein.
Throughout the period 2011 to 2013, actual new money interest rates varied with the changing market conditions, and the
assumptions we used to discount our reserves during this period generally trended downward slightly for all segments and product lines.
In 2011, long-term interest rates declined significantly due to the European Union debt crisis and the Federal Reserve Board’s actions.
Interest rates improved somewhat in 2013 but continue to remain low relative to historical norms. Reserve discount rate assumptions for
new policies and new claims have been adjusted to reflect our current and expected net investment returns. Changes in our average
discount rate assumptions tend to occur gradually over a longer period of time because of the long-duration investment portfolio needed
to support the reserves for the majority of our lines of business.
During 2013, we updated our mortality and interest rate assumptions for our Closed Block group pension line of business to reflect
recent trends. The updated assumptions resulted in an immaterial increase to our group pension reserves. The retirement rate experience
has remained stable and consistent with expectations.
Claim resolution rates have a greater chance of significant variability in a shorter period of time than our other reserve assumptions.
These rates are reviewed on a quarterly basis for the death and recovery components separately. Claim resolution rates in our Unum US
group and individual long-term disability product lines and our Closed Block individual disability product line have over the last several
years exhibited some variability. Relative to the resolution rate we expect to experience over the life of the block of business, actual
quarterly rates during 2012 and 2013 have varied by +3 and -3 percent in our Unum US group long-term disability line of business, between
+8 and -10 percent in our Unum US individual disability — recently issued line of business, and between +4 and -4 percent in our Closed
Block individual disability line of business. Claim resolution rates are very sensitive to operational and environmental changes and can be
volatile over short periods of time. Throughout the period 2011 to 2013, our claim resolution rates were fairly consistent with or slightly
favorable to our long-term assumptions. 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.
Regarding experience for our older age, longer duration disabled claimants in our Closed Block individual disability line of business,
the claim resolution rates, primarily as pertaining to life expectancy of the insured, remained relatively consistent during 2013 and 2012
with the mortality assumptions for this particular claim block that we updated in 2011. See “2011 Claim Reserve Increase for Individual
Disability Closed Block Business” contained herein.