Unum 2015 Annual Report Download - page 132

Notes To Consolidated Financial Statements
130 Unum 2015 Annual Report
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) 2015 2014 2013
Balance at January 1 $24,194.0 $24,535.6 $24,567.1
Less Reinsurance Recoverable 2,066.9 2,072.8 2,006.0
Net Balance at January 1 22,127.1 22,462.8 22,561.1
Incurred Related to
Current Year 5,058.1 4,851.5 4,751.9
Prior Years
Interest 1,177.6 1,214.7 1,230.0
All Other Incurred (111.6) (13.5) (44.7)
Foreign Currency (119.5) (138.7) 41.2
Total Incurred 6,004.6 5,914.0 5,978.4
Paid Related to
Current Year (1,853.7) (1,702.3) (1,657.3)
Prior Years (4,546.5) (4,547.4) (4,419.4)
Total Paid (6,400.2) (6,249.7) (6,076.7)
Net Balance at December 31 21,731.5 22,127.1 22,462.8
Plus Reinsurance Recoverable 2,064.6 2,066.9 2,072.8
Balance at December 31 $23,796.1 $24,194.0 $24,535.6
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 2015, 2014, and 2013.
“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.
2014 Long-term Care Reserve Increase
Policy reserves for our long-term care block of business are determined using the gross premium valuation method and, prior to 2014,
were valued based on assumptions established as of December 31, 2011, the date of the initial loss recognition. Gross premium valuation
assumptions do not change after the date of loss recognition unless reserves are again determined to be deficient. We undertake a review
of policy reserve adequacy annually during the fourth quarter of each year, or more frequently if appropriate, using best estimate assumptions
as of the date of the review.
Included in our 2014 review was an analysis of our reserve assumptions, including those for the discount rate, mortality and morbidity
rates, persistency, and premium rate increases. Our analysis of reserve discount rate assumptions considered the continued historic low
interest rate environment, future market expectations, and our view of future portfolio yields. The assumptions we established in 2011
were set at a level that we estimated would be sustainable in a low interest rate environment for three to five years, with improvements