Unum 2015 Annual Report Download - page 24

Management’s Discussion and Analysis
of Financial Condition and Results of Operations
22 Unum 2015 Annual Report
2014 and 2013 Retirement Benefit Changes
In 2014, we amended our U.S. qualified defined benefit pension plan to allow a limited-time offer of benefit payouts to eligible former
employees with a vested right to a pension benefit. The offer provided eligible former employees, regardless of age, with an option to elect
to receive a lump-sum settlement of his or her entire accrued pension benefit in December 2014 or to elect receipt of monthly pension
benefits commencing in January 2015. We recognized a settlement loss of $64.4 million before tax, or $41.9 million after tax, during the
fourth quarter of 2014. This non-operating retirement-related loss represented the applicable portion of the unrecognized actuarial loss
which had previously been included in accumulated other comprehensive income and which pertained to the settled benefit obligation.
In 2013, we adopted plan amendments which froze participation and benefit accruals in our defined benefit pension plans in the U.S.
and U.K., effective December 31, 2013 for the U.S. plans and June 30, 2014 for the U.K. plan. As a result of these plan amendments we
recognized a net before-tax curtailment gain of $3.0 million during 2013. Because the amendments eliminated all future service accruals
subsequent to the effective dates of the amendments, we were also required to remeasure the benefit obligations of our pension plans,
which decreased our net pension liability approximately $330 million during 2013, with a corresponding increase in other comprehensive
income, less applicable income tax of approximately $115 million. Concurrent with our amendments to our defined benefit pension plans,
we adopted amendments to increase the benefits under our defined contribution plans commensurate with the effective dates of the
pension plan amendments.
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. We believe adopting this process, which reflects
an evolving regulatory and industry practice, is in the best interest of our customers. Therefore, 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 the fourth quarter of 2013, we completed our assessment of benefits which we estimate will be paid under this initiative, and
as such, established additional 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, for a total reserve increase of $95.5 million. These
reserve adjustments decreased 2013 net income $62.1 million.
Although the legal and regulatory environment continues to evolve, we believe our decision to adopt this claims practice and establish
additional reserves is in the best interests of our customers.
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.