For the year ended December 31, 1996, as compared with the same period in 1995, UNUM reported increased pretax operating income, driven by improved results in the Disability Insurance and Special Risk Insurance segments. These increases were primarily the result of improved claims experience in UNUM's core disability lines and in group life, along with an increase in investment income.
completion of a review of UNUM's discontinued product portfolio, a $22.4 million charge was taken to establish a reserve for the present value of expected future losses on certain discontinued products. Losses for these products are charged to the reserve at the time realized. The products incorporated in the charge consist of certain discontinued special risk, retirement and medical products.
Reserves for unpaid claims are estimates based on UNUM's historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs. Many factors affect actuarial calculations of claim reserves, including but not limited to, interest rates and current and anticipated incidence rates, recovery rates and economic and societal conditions. Management continuously monitors claim trends and responds by periodically adjusting prices on selected new and inforce business, refining underwriting guidelines and strengthening risk management programs. In addition, management periodically performs a review of reserve estimates and assumptions. If management determines reserve assumptions need to be updated, any resulting adjustments to reserves are reflected in current results. Given that insurance products contain inherent risks and uncertainties, the ultimate liability may be more or less than such estimates indicate.
Corporate includes transactions that are generally non-insurance related. The increased pretax operating loss in Corporate for the year ended December 31, 1997, as compared with 1996, was primarily due to decreased investment income, principally from the Company's increased use of capital to repurchase shares of its common stock, and higher operating expenses. The increased pretax operating loss in 1996, compared with 1995, was primarily the result of increased international development costs and interest expense on corporate borrowings, partially offset by increased investment income.
On October 1, 1996, UNUM Life Insurance Company of America ("UNUM America") and First UNUM Life Insurance Company ("First UNUM") closed the sale of their respective TSA businesses to The Lincoln National Life Insurance Company and Lincoln Life & Annuity Company of New York, both subsidiaries of Lincoln National Corporation (see Note 5 "Sale of Tax-Sheltered Annuity Business"). For legal considerations, the separate account's TSA related assets were not transferred on October 1, 1996. TSA related assets are transferred only upon receipt of a contractholder and participant's consent for assumption reinsurance.
Effective January 1, 1997, UNUM adopted FAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which established accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The statement provides guidance for recognition or derecognition of assets and liabilities, focusing on the concepts of control and extinguishment. The adoption of FAS 125 did not have a material effect on UNUM's results of operations or financial position.
The 1996 Long-Term Stock Incentive Plan ("1996 Incentive Plan") provides for granting of options to officers, non-employee directors of UNUM Corporation, and key employees to purchase UNUM Corporation common stock over ten years. The 1996 Incentive Plan also provides for granting to key officers restricted stock awards whose vesting is contingent upon achieving prescribed financial performance objectives or upon the grantee remaining in UNUM's employ for a specified period of time. Options and restricted stock may be granted annually at the discretion of the Committee. The number of shares subject to issuance cannot exceed 7.0 million. At December 31, 1997, and 1996, 5,003,480 and 6,990,000 shares, respectively, were available for grant under the 1996 Incentive Plan.