Unum 2015 Annual Report Download - page 133

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Unum 2015 Annual Report
in market yields beginning after the third year. Since that time, however, interest rates had continued to hover near historic lows, and credit
spreads had tightened. Our assumption update for mortality incorporated the last three years of Company-specific experience and emerging
trends as well as industry data, where available and appropriate, and reflected improvements in life expectancies beyond what was initially
anticipated in 2011. Our morbidity assumptions were updated to reflect trends from our own emerging Company experience in claim
incidence and terminations, as well as trends based on available and appropriate industry data and studies. Our premium rate increase
assumptions were updated to reflect progress-to-date and our on-going rate increase strategy.
Based on our analysis at that time, we lowered the discount rate assumption to reflect the low interest rate environment and our
revised expectation of future investment portfolio yield rates. Our revised assumptions anticipated the low interest rate environment
persisting for the next three to five years, with a return to more historical averages over the following five year period. We updated 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 may receive long-term care benefits.
We changed our morbidity assumptions to reflect emerging industry experience as well as our own Company experience, and we updated
our projection of future premium rate increase approvals. Using our revised best estimate assumptions, as of December 31, 2014, we
determined that our policy and claim reserves should be increased $698.2 million to reflect our current estimate of future benefit obligations.
Of this amount, $85.8 million was related to claim reserves, which can be attributed to prior year incurred claims, thereby impacting the
results shown in the preceding chart.
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 2013, we completed our assessment
of benefits which we estimated would 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.
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 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.