Unum 2008 Annual Report Download - page 106

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Gains or losses on the termination of ineffective hedges are reported in current earnings. In the event a hedged item is disposed of or
the anticipated transaction being hedged is no longer likely to occur, we will terminate the related derivative and recognize the gain or loss
on termination in current earnings.
For a derivative not designated as a hedging instrument, the change in fair value is recognized in earnings during the period of
change. We report changes in the fair values of certain embedded derivatives as realized investment gains and losses during the period of
change, as required under the provisions of Statement of Financial Accounting Standards No. 133 Implementation Issue B36 (DIG Issue B36),
Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposure That Are Unrelated
or Only Partially Related to the Creditworthiness of the Obligor Under Those Instruments.
We routinely cede reinsurance to other insurance companies. For ceded reinsurance agreements wherein
we are not relieved of our legal liability to our policyholders, we report assets and liabilities on a gross basis. Our reinsurance recoverable
includes the balances due from reinsurers under the terms of these reinsurance agreements for ceded policy and contract benefits, ceded
future policy and contract benefits, and ceded unearned premiums, less ceded policy loans.
 Certain costs of acquiring new business that vary with and are primarily related to the production of new
business 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 subsequent to the year of issue.
Deferred acquisition costs related to traditional policies are amortized over the premium paying period of the related policies in
proportion to the ratio of the present value of annual expected premium income to the present value of total expected premium income.
Such amortization is adjusted annually to reflect the actual policy persistency as compared to the anticipated experience.
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. Adjustments are
made each year to reflect actual experience for assumptions which deviate significantly compared to anticipated experience.
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 generally performed on an annual basis. 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. The assumptions used in loss recognition testing represent our best estimates of future experience.
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 during the fourth quarter of each year 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 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 $563.7 million and
$539.8 million as of December 31, 2008 and 2007, respectively.