Unum 2014 Annual Report Download - page 96

94 UNUM • 2014 ANNUAL REPORT
Notes To Consolidated Financial Statements
Deferred Acquisition Costs: Incremental direct costs associated with the successful acquisition of new or renewal insurance contracts
have been deferred. Such costs include commissions, other agency compensation, certain selection and policy issue expenses, and certain
field expenses. Acquisition costs that do not vary with the production of new business, such as commissions on group products which are
generally level throughout the life of the policy, are excluded from deferral. Deferred acquisition costs are subject to recoverability testing
at the time of policy issue and loss recognition testing in subsequent years.
Deferred acquisition costs related to non interest-sensitive policies are amortized in proportion to the premium income we expect
to receive over the life of the policies. Deferred acquisition costs related to interest-sensitive policies are amortized over the lives of the
policies in relation to the present value of estimated gross profits from surrender charges, mortality margins, investment returns, and
expense margins. Deviations from projections result in a change to the rate of amortization in the period during which such events occur.
Generally, the amortization periods for these policies approximate the estimated lives of the policies.
For certain products, policyholders can elect to modify product benefits, features, rights, or coverages by exchanging a contract
for a new contract or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract.
These transactions are known as internal replacement transactions. Internal replacement transactions wherein the modification does not
substantially change the policy are accounted for as continuations of the replaced contracts. Unamortized deferred acquisition costs from
the original policy continue to be amortized over the expected life of the new policy, and the costs of replacing the policy are accounted
for as policy maintenance costs and expensed as incurred. Internal replacement transactions, principally on group contracts, that result
in a policy that is substantially changed are accounted for as an extinguishment of the original policy and the issuance of a new policy.
Unamortized deferred acquisition costs on the original policy that was replaced are immediately expensed, and the costs of acquiring the
new policy are capitalized and amortized in accordance with our accounting policies for deferred acquisition costs.
Loss recognition is performed on an annual basis, or more frequently if appropriate, using best estimate assumptions as to future
experience as of the date of the test. Insurance contracts are grouped for each major product line within a segment when we perform
the loss recognition tests. If loss recognition testing indicates that deferred acquisition costs are not recoverable, the deficiency is charged
to expense.
Goodwill: Goodwill is the excess of the amount paid to acquire a business over the fair value of the net assets acquired. We review
the carrying amount of goodwill for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that
the carrying amount might not be recoverable. Goodwill impairment testing compares the fair value of a reporting unit with its carrying
amount, including goodwill. The fair values of the reporting units are determined using discounted cash flow models. The critical estimates
necessary in determining fair value are projected earnings and the discount rate. We set our discount rate assumption based on an
expected risk adjusted cost of capital. If the fair value of the reporting unit to which the goodwill relates is less than the carrying amount
of the unamortized goodwill, the carrying amount is reduced with a corresponding charge to expense.
Property and Equipment: Property and equipment is reported at cost less accumulated depreciation, which is calculated on the
straight-line method over the estimated useful life. The accumulated depreciation for property and equipment was $823.3 million and
$760.8 million as of December 31, 2014 and 2013, respectively.
Value of Business Acquired: Value of business acquired represents the present value of future profits recorded in connection with the
acquisition of a block of insurance policies. The asset is amortized based upon expected future premium income for non interest-sensitive
insurance policies and estimated future gross profits from surrender charges, mortality margins, investment returns, and expense margins
for interest-sensitive insurance policies. The value of business acquired, which is included in other assets in our consolidated balance sheets,
was $15.2 million and $19.0 million at December 31, 2014 and 2013, respectively. The accumulated amortization for value of business
acquired was $134.7 million and $138.2 million as of December 31, 2014 and 2013, respectively.