Unum 2015 Annual Report Download - page 29

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Unum 2015 Annual Report
Claim reserves, unlike policy reserves, are subject to revision as current claim experience and projections of future factors affecting
claim experience change. Each quarter we review our emerging experience to ensure that our claim reserves are appropriate. If we believe,
based on our actual experience and our view of future events, that our long-term assumptions need to be modified, we adjust our reserves
accordingly with a charge or credit to our current period income.
Multiple estimation methods exist to establish claim reserve liabilities, with each method having its own advantages and disadvantages.
Available reserving methods utilized to calculate claim reserves include the tabular reserve method, the paid development method, the
incurred loss development method, the count and severity method, and the expected claim cost method. No single method is better than
the others in all situations and for all product lines. The estimation methods we have chosen are those that we believe produce the most
reliable reserves.
We use a tabular reserve methodology for our Unum US group and individual long-term disability claims and for our Closed Block
group and individual long-term care claims that have been reported. Under the tabular reserve methodology, reserves for reported claims
are based on certain characteristics of the actual reported claimants, such as age, length of time disabled, and medical diagnosis, as well
as assumptions regarding claim duration, discount rate, and policy benefit offsets. We believe the tabular reserve method is the most
accurate to calculate long-term liabilities and allows us to use the most available known facts about each claim. IBNR claim reserves for
our long-term products are calculated using the count and severity method using historical patterns of the claims to be reported and the
associated claim costs. For Unum US group short-term disability products, an estimate of the value of future payments to be made on
claims already submitted, as well as on IBNR claims, is determined in aggregate using a paid development method rather than on the
individual claimant basis that we use for reported claims on long-term products. The average length of time between the event triggering
a claim under a policy and the final resolution of those claims is much shorter for these products than for our long-term liabilities and
results in less estimation variability.
Claim reserves for Unum US group life and accidental death and dismemberment products are related primarily to death claims
reported but not yet paid, IBNR death claims, and a liability for waiver of premium benefits. The death claim reserve is based on the
actual face amount to be paid, the IBNR reserve is calculated using the paid development method, and the waiver of premium benefits
reserve is calculated using the tabular reserve methodology.
Claim reserves supporting our Unum UK segment are calculated using generally the same methodology that we use for Unum US
disability and group life reserves. The assumptions used in calculating claim reserves for this line of business are based on standard United
Kingdom industry experience, adjusted for Unum UK’s own experience.
The majority of the Colonial Life segment lines of business have short-term benefits, which generally have less estimation variability
than our long-term products because of the shorter claim payout period. Our claim reserves for Colonial Life’s lines of business are
predominantly determined using the incurred loss development method based on our own experience. The incurred loss development
method uses the historical patterns of payments by loss date to predict future claim payments for each loss date. Where the incurred loss
development method may not be appropriate, we estimate the incurred claims using an expected claim cost per policy or other measure
of exposure. The key assumptions for claim reserves for the Colonial Life lines of business are: (1) the timing, rate, and amount of estimated
future claim payments; and (2) the estimated expenses associated with the payment of claims.
The following table displays policy reserves, incurred claim reserves, and IBNR claim reserves by major product line, with the summation
of the policy reserves and claim reserves shown both gross and net of the associated reinsurance recoverable. Incurred claim reserves
represent the expected benefits payable under each incurred claim, along with other expenses associated with the payment of the claims.
IBNR claim reserves include provisions for incurred but not reported claims and a provision for reopened claims for our disability products.
The IBNR and reopened claim reserves for our disability products are developed and maintained in aggregate based on historical monitoring.
Impacting year over year comparability of policy and claim reserves in the following chart is the 2014 long-term care reserve increase.
See “Executive Summary” and Note 6 of the “Notes to Consolidated Financial Statements” contained herein for further discussion.