Unum 2014 Annual Report Download - page 93

UNUM • 2014 ANNUAL REPORT 91
If we determine that the decline in value of an investment is other than temporary, the investment is written down to fair value,
and an impairment loss is recognized in the current period, either in earnings or in both earnings and other comprehensive income, as
applicable. Other-than-temporary impairment losses on fixed maturity securities which we intend to sell or more likely than not will be
required to sell before recovery in value are recognized in earnings and equal the entire difference between the security’s amortized cost
basis and its fair value. For securities which we do not intend to sell and it is not more likely than not that we will be required to sell
before recovery in value, other-than-temporary impairment losses recognized in earnings generally represent the difference between the
amortized cost of the security and the present value of our best estimate of cash flows expected to be collected, discounted using the
effective interest rate implicit in the security at the date of acquisition. For fixed maturity securities for which we have recognized an
other-than-temporary impairment loss through earnings, if through subsequent evaluation there is a significant increase in expected cash
flows, the difference between the new amortized cost basis and the cash flows expected to be collected is accreted as net investment
income over the remaining life of the investment. See Notes 2 and 3.
Mortgage Loans: Mortgage loans are generally held for investment and are carried at amortized cost less an allowance for probable
losses. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Prepayment penalties
are recognized as investment income when received. For mortgage loans on which collection of interest income is uncertain, we discontinue
the accrual of interest and recognize it in the period when an interest payment is received. We typically do not resume the accrual of interest
on mortgage loans on nonaccrual status until there are significant improvements in the underlying financial condition of the borrower.
We consider a loan to be delinquent if full payment is not received in accordance with the contractual terms of the loan.
We evaluate each of our mortgage loans individually for impairment and assign an internal credit quality rating based on a
comprehensive rating system used to evaluate the credit risk of the loan. Although all available and applicable factors are considered in our
analysis, loan-to-value and debt service coverage ratios are the most critical factors in determining impairment. If we determine that it is
probable we will be unable to collect all amounts due under the contractual terms of a mortgage loan, we establish an allowance for credit
loss. If we expect to foreclose on the property, the amount of the allowance typically equals the excess carrying value of the mortgage
loan over the fair value of the underlying collateral. If we expect to retain the mortgage loan until payoff, the allowance equals the excess
carrying value of the mortgage loan over the expected future cash flows of the loan. Additions and reductions to our allowance for credit
losses on mortgage loans are reported as a component of net realized investment gains and losses. We do not purchase mortgage loans
with existing credit impairments. See Note 3.
Policy Loans: Policy loans are presented at unpaid balances directly related to policyholders. Interest income is accrued on the
principal amount of the loan based on the loan’s contractual interest rate. Included in policy loans are $3,068.4 million and $3,043.7 million
of policy loans ceded to reinsurers at December 31, 2014 and 2013, respectively.