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Unum 2007 Annual Report 23
While we are confident in our business outlook, recent market and economic trends indicate the potential for an economic slowdown.
We believe the steps we have previously taken, such as product diversification across sectors and locations; the shift in our business
mix; our disciplined underwriting, pricing, claims, and expense management; the positioning of our investment portfolio; and the
implementation of a capital management strategy which we believe provides financial flexibility will somewhat mitigate the potential
impact of an economic slowdown on our operating results.
2007 Significant Transactions and Events
Revised Claim Reassessment Reserve Estimate
As previously noted, we implemented a claim reassessment process as a result of the settlement agreements we entered into with various
state insurance regulators in the fourth quarter of 2004 and the settlement agreement we entered into with the California Department of
Insurance (DOI) in the third quarter of 2005. In the second quarter of 2007, we increased our provision for the estimated cost of this claim
reassessment process $53.0 million before tax and $34.5 million after tax based on changes in our emerging experience for the number
of decisions being overturned and the average cost per reassessed claim.
The revised second quarter of 2007 estimate was based on the cost of approximately 99 percent of the potential inventory of claim
reassessment information forms returned to us, with our claim reassessment on approximately 88 percent of the forms completed at that
time. At the time of our second quarter of 2007 revision, we had not yet finalized our claim reassessment on the remaining forms but had
performed a financial review and included that information in our analysis of emerging experience. Additional information regarding the
second quarter revision to our estimate is as follows:
1. For the second quarter of 2007, the overturn rate averaged 48 percent and was 45 percent for the first six months of 2007.
2. The average overturn rate was 40 percent at June 2007 from inception to date, compared to 37 percent at December 2006.
3. The average incurred cost per reassessed claim during the first six months of 2007 was above the assumption we used for
our third quarter 2006 revision.
4. Our assumption concerning the total number of claims projected to be reassessed remained at approximately 23,000, with slightly
more claims for group long-term disability and fewer for individual disability.
5. We increased our previous estimate for benefit costs for claims reopened for our Unum US group long-term disability product line
$76.5 million. The revision related to the increase during the second quarter of 2007 in the overturn rate and the average cost,
as well as a slightly higher number of claims.
6. We decreased our previous estimate for benefit costs for claims reopened for our Individual Disability — Closed Block segment
$10.7 million. Although the experience relative to our assumptions for the overturn rate was slightly higher, experience indicated
that the total number of claims for this segment would be less than our previous assumptions.
7. We decreased our previous estimate for the additional incremental direct claim reassessment operating expenses $12.8 million
due to our projections for an earlier completion of the reassessment process. We released $10.3 million for Unum US group long-
term disability and $2.5 million for our Individual Disability — Closed Block segment.
8. These second quarter of 2007 adjustments to our claim reassessment costs decreased 2007 before-tax operating earnings for
our Unum US group disability line of business $66.2 million and increased 2007 before-tax operating earnings for our Individual
Disability — Closed Block segment $13.2 million.
We have now completed the claims reassessment process, with no further adjustments to our provision for the estimated claim
reassessment costs. See “2006 Significant Transactions and Events” and “2005 Significant Transactions and Events” contained herein
for further discussion of the claim reassessment process and the settlement agreements.