Unum 2014 Annual Report Download - page 92

90 UNUM • 2014 ANNUAL REPORT
Notes To Consolidated Financial Statements
Note 1. Significant Accounting Policies
Basis of Presentation: The accompanying consolidated financial statements of Unum Group and its subsidiaries (the Company) have
been prepared in accordance with U.S. generally accepted accounting principles (GAAP). Such accounting principles differ from statutory
accounting principles (see Note 15). Intercompany transactions have been eliminated.
Description of Business: We are the largest provider of group and individual disability products in the United States and the
United Kingdom. We also provide a complementary portfolio of other insurance products, including life insurance, employer- and
employee-paid group benefits, and other related services. We market our products primarily to employers interested in providing
benefits to their employees.
We have three principal operating business segments: Unum US, Unum UK, and Colonial Life. Our other reporting segments are
Closed Block and Corporate. See Note 13 for further discussion of our operating segments.
Use of Estimates: The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions
that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the
future as more information becomes known, which could impact the amounts reported and disclosed herein.
Fixed Maturity Securities: Fixed maturity securities include long-term bonds and redeemable preferred stocks. Fixed maturity
securities not bought and held for the purpose of selling in the near term but for which we do not have the positive intent and ability
to hold to maturity are classified as available-for-sale and reported at fair value. Changes in the fair value of available-for-sale fixed
maturity securities, except for amounts related to other-than-temporary impairment losses recognized in earnings, are reported as a
component of other comprehensive income. These amounts are net of income tax and valuation adjustments to deferred acquisition
costs and reserves for future policy and contract benefits which would have been recorded had the related unrealized gain or loss on
these securities been realized.
Interest income is recorded as part of net investment income when earned, using an effective yield method giving effect to
amortization of premium and accretion of discount. Included within fixed maturity securities are mortgage-backed and asset-backed
securities. We recognize investment income on these securities using a constant effective yield based on projected prepayments of the
underlying loans and the estimated economic life of the securities. Actual prepayment experience is reviewed periodically, and effective
yields are recalculated when differences arise between prepayments originally projected and the actual prepayments received and
currently projected. The effective yield is recalculated on a retrospective basis, and the adjustment is reflected in net investment income.
For fixed maturity securities on which collection of investment income is uncertain, we discontinue the accrual of investment income and
recognize investment income when interest and dividends are received. Payment terms specified for fixed maturity securities may include a
prepayment penalty for unscheduled payoff of the investment. Prepayment penalties are recognized as investment income when received.
In determining when a decline in fair value below amortized cost of a fixed maturity security is other than temporary, we evaluate
available information, both positive and negative, in reaching our conclusions. In particular, we consider the strength of the issuer’s balance
sheet, its debt obligations and near-term funding requirements, cash flow and liquidity, the profitability of its core businesses, the
availability of marketable assets which could be sold to increase liquidity, its industry fundamentals and regulatory environment, and its
access to capital markets. Although all available and applicable factors are considered in our analysis, our expectation of recovering the
entire amortized cost basis of the security, whether we intend to sell the security, whether it is more likely than not that we will be required
to sell the security before recovery of its amortized cost, and whether the security is current on principal and interest payments are the
most critical factors in determining whether impairments are other than temporary. The significance of the decline in value and the length
of time during which there has been a significant decline are also important factors, but we generally do not record an impairment loss
based solely on these two factors, since often other more relevant factors will impact our evaluation of a security.