Liability for Unpaid Claims and Claim Adjustment Expenses

12 Months Ended

Dec. 31, 2019

Insurance [Abstract]

Liability for Unpaid Claims and Claims Adjustment Expenses Disclosure

Changes in the liability for unpaid claims and claim adjustment expenses are as follows:

	2019		2018		2017
	(in millions of dollars)
Balance at January 1	$	23,149.0	$	23,222.0	$	23,249.5
Less Reinsurance Recoverable	2,227.3		2,182.0		2,163.6
Net Balance at January 1	20,921.7		21,040.0		21,085.9
Incurred Related to
Current Year	6,113.2		5,832.3		5,422.9
Prior Years
Interest	1,036.5		1,049.8		1,089.7
All Other Incurred	(274.1)		(106.2)		(158.2)
Foreign Currency	76.0		(110.7)		167.5
Total Incurred	6,951.6		6,665.2		6,521.9
Paid Related to
Current Year	(2,532.4)		(2,354.7)		(2,156.9)
Prior Years	(4,511.0)		(4,428.8)		(4,410.9)
Total Paid	(7,043.4)		(6,783.5)		(6,567.8)
Net Balance at December 31	20,829.9		20,921.7		21,040.0
Plus Reinsurance Recoverable	2,246.8		2,227.3		2,182.0
Balance at December 31	$	23,076.7	$	23,149.0	$	23,222.0

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 of the year’s claim payments relative to prior years at our average reserve discount rate for the respective periods.

"Incurred Related to Prior Years - All Other Incurred" shown in the preceding chart includes the reserve adjustments as discussed in the following paragraphs, which impact the comparability between the years presented. Excluding those adjustments, the variability exhibited year over year is primarily caused 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.

2018 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 the third quarter of 2018, were valued based on assumptions established as of December 31, 2014, the date of our last assumption update under 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.

During the third quarter of 2018, we completed our annual review of policy reserve adequacy, which incorporated our most recent experience and included a review of all assumptions, including active policy terminations, claims incidence, claim terminations, morbidity, premium rate increases, and new money yield rates. The review utilized internal and external data and outside consulting firms for quality assurance and industry benchmarking. Based on our analysis, during the third quarter of 2018, we updated our reserve assumptions and determined that our policy and claim reserves should be increased by $750.8 million, or $593.1 million after tax, to reflect our current estimate of future benefit obligations. This increase was primarily driven by the update to our liability and interest rate assumptions, particularly claims incidence and claim termination rates, which resulted in an increase to reserves of approximately $2.2 billion. Partially offsetting the increase was the update to our assumptions for premium rate increases which decreased reserves approximately $1.4 billion, resulting in the net increase to reserves of $750.8 million. Of this amount, approximately $236 million was related to our liability for unpaid claims and claims adjustment expenses, which can be primarily attributed to prior year incurred claims, thereby impacting the results shown in the preceding chart.

2017 Unclaimed Death Benefits Reserve Increase

Similar to other insurers, we were the subject of an examination by a third party acting on behalf of a number of state treasurers concerning our compliance with the unclaimed property laws of the participating states. We cooperated fully with this examination and in the fourth quarter of 2017, we started the process to reach a Global Resolution Agreement with the third party regarding settlement of the examination, which we finalized in January of 2018. Under the terms of the agreement, the third party acting on behalf of the signatory states compared insured data to the Social Security Administration's Death Master File to identify deceased insureds and contract holders where a valid claim has not been made. During the fourth quarter of 2017, we established reserves which reflect our estimate of the liability expected to be paid as we execute on the terms of the settlement. Claim reserves were increased $18.5 million for Unum US group life, $8.1 million for Unum US voluntary life, and $12.4 million for Colonial Life voluntary life, for a total reserve increase of $39.0 million before tax. The reserves established were attributed to prior years incurred claims, thereby impacting the results shown in the preceding chart.

Reconciliation

A reconciliation of policy and contract benefits and reserves for future policy and contract benefits as reported in our consolidated balance sheets to the liability for unpaid claims and claim adjustment expenses is as follows:

	December 31
	2019		2018		2017
	(in millions of dollars)
Policy and Contract Benefits	$	1,745.5	$	1,695.7	$	1,605.2
Reserves for Future Policy and Contract Benefits	47,780.1		44,841.9		45,601.6
Total	49,525.6		46,537.6		47,206.8
Less:
Life Reserves for Future Policy and Contract Benefits	8,435.7		8,330.9		8,231.3
Accident and Health Active Life Reserves	12,210.1		11,837.4		10,658.8
Adjustment Related to Unrealized Investment Gains and Losses	5,803.1		3,220.3		5,094.7
Liability for Unpaid Claims and Claim Adjustment Expenses	$	23,076.7	$	23,149.0	$	23,222.0

The adjustment related to unrealized investment gains and losses reflects the changes that would be necessary to policyholder liabilities if the unrealized investment gains and losses related to the corresponding available-for-sale securities had been realized. Changes in this adjustment are reported as a component of other comprehensive income or loss.