Unum 2014 Annual Report Download - page 98

96 UNUM • 2014 ANNUAL REPORT
Notes To Consolidated Financial Statements
Short-term and Long-term Debt: Debt is generally carried at the unpaid principal balance, net of unamortized discount or premium.
Short-term debt consists of debt due within the next twelve months, including that portion of debt otherwise classified as long-term.
Original issue discount or premium as well as debt issue costs are recognized as a component of interest expense over the period the debt
is expected to be outstanding. The carrying amount of long-term debt that is part of a fair value hedge program includes an adjustment
to reflect the effect of the change in fair value attributable to the risk being hedged. Net interest settlements for fair value hedges on our
long-term debt are recognized as a component of interest expense. See Note 8.
Treasury Stock and Retirement of Common Stock: Treasury stock is reflected as a reduction of stockholders’ equity at cost. When
shares are retired, the par value is removed from common stock, and the excess of the repurchase price over par is allocated between
additional paid-in capital and retained earnings. See Note 10.
Revenue Recognition: Our non interest-sensitive life and accident and health products are long-duration contracts, and premium
income is recognized as revenue when due from policyholders. If the contracts are experience rated, the estimated ultimate premium is
recognized as revenue over the period of the contract. The estimated ultimate premium, which is revised to reflect current experience,
is based on estimated claim costs, expenses, and profit margins.
For interest-sensitive products, the amounts collected from policyholders are considered deposits, and only the deductions during the
period for cost of insurance, policy administration, and surrenders are included in revenue. Policyholders’ funds represent funds deposited
by contract holders and are not included in revenue.
Fees from our administrative-services only and family medical leave products are reported as other income when services are rendered.
Reinsurance: We routinely enter into reinsurance agreements with other insurance companies to spread risk and thereby limit losses
from large exposures. For each of our reinsurance agreements, we determine if the agreement provides indemnification against loss or
liability relating to insurance risk in accordance with applicable accounting standards. If we determine that a reinsurance agreement does
not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, we record the agreement using the deposit
method of accounting.
Reinsurance activity is accounted for on a basis consistent with the terms of the reinsurance contracts and the accounting used
for the original policies issued. Premium income and benefits and change in reserves for future benefits are presented in our consolidated
statements of income net of reinsurance ceded. Ceded liabilities for policy and contract benefits, future policy and contract benefits, and
unearned premiums are reported on a gross basis in our consolidated balance sheets, as are ceded policy loans. Our reinsurance recoverable
includes the balances due from reinsurers under the terms of the reinsurance agreements for these ceded balances as well as settlement
amounts currently due.
Where applicable, gains or losses on reinsurance transactions are deferred and amortized into earnings based upon expected future
premium income for non interest-sensitive insurance policies and estimated future gross profits for interest-sensitive insurance policies.
The deferred gain on reinsurance included in other liabilities in our consolidated balance sheets at December 31, 2014 and 2013 was
$41.7 million and $53.6 million, respectively.
Under ceded reinsurance agreements wherein we are not relieved of our legal liability to our policyholders, if the assuming reinsurer
is unable to meet its obligations, we remain contingently liable. We evaluate the financial condition of reinsurers and monitor concentration
of credit risk to minimize this exposure. We may also require assets in trust, letters of credit, or other acceptable collateral to support
our reinsurance recoverable balances. In the event that reinsurers do not meet their obligations to us under the terms of the reinsurance
agreements, certain amounts reported in our reinsurance recoverable could become uncollectible, in which case the reinsurance
recoverable balances are stated net of allowances for uncollectible reinsurance. See Note 12.