Unum 2006 Annual Report Download - page 127

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
109
Note 1 - Significant Accounting Policies - Continued
Goodwill: Goodwill is the excess of the amount paid to acquire a business over the fair value of the net assets
acquired. The carrying amount of goodwill is reviewed for impairment annually or whenever events or changes in
circumstances indicate that the carrying amount might not be recoverable. If the fair value of the operations 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 $496.4 million and $443.0 million as of December 31, 2006 and 2005, respectively.
Revenue Recognition: Traditional 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.
Policy and Contract Benefits: Policy and contract accrued benefits, principally related to accident and health
insurance policies, are based on reported losses and estimates of incurred but not reported losses for traditional life
and accident and health products. For interest-sensitive products, benefits are the amounts paid and expected to be
paid on insured claims in excess of the policyholders’ policy fund balances.
Policy and Contract Benefits Liabilities: Active life reserves for future policy and contract benefits on traditional
life and accident and health products have been provided on the net level premium method. The reserves are
calculated based upon assumptions as to interest, withdrawal, morbidity, and mortality that were appropriate at the
date of issue. Interest assumptions for active life reserves may be graded downward over a period of years.
Withdrawal assumptions are based on our actual experience. Morbidity and mortality assumptions are based upon
industry standards adjusted as appropriate to reflect our actual experience. The assumptions vary by plan, year of
issue, and policy duration and include a provision for adverse deviation.
Disabled lives reserves for future policy and contract benefits on disability policies are calculated based upon
assumptions as to interest and claim resolution rates that are currently appropriate. Claim resolution rate
assumptions are based on our actual experience. The interest rate assumptions used for discounting claim reserves
are based on projected portfolio yield rates, after consideration for defaults and investment expenses, for the assets
supporting the liabilities for the various product lines. The assets for each product line are selected according to the
specific investment strategy for that product line to produce asset cash flows that follow timing and amount patterns
similar to those of the anticipated liability payments.
Reserves for future policy and contract benefits on group single premium annuities have been provided on a net
single premium method. The reserves are calculated based on assumptions as to interest, mortality, and retirement
that were appropriate at the date of issue. Mortality assumptions are based upon industry standards adjusted as
appropriate to reflect our actual experience. The assumptions vary by year of issue.
Reserves for future policy and contract benefits on interest-sensitive products are principally policyholder account
values.
Policyholders’ Funds: Policyholders’ funds represent customer deposits plus interest credited at contract rates. We
control interest rate risk by investing in quality assets which have an aggregate duration that closely matches the
expected duration of the liabilities.