Unum 2008 Annual Report Download - page 107

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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 traditional insurance
policies and estimated future gross profits for interest-sensitive insurance policies. The value of business acquired, which is included in other
assets in the consolidated balance sheets, was $50.5 million and $71.2 million at December 31, 2008 and 2007, respectively. The accumulated
amortization for value of business acquired was $92.2 million and $110.9 million as of December 31, 2008 and 2007, respectively. The
amortization of value of business acquired, which is included in other expenses in the consolidated statements of income, was $7.8 million,
$7.9 million, and $8.0 million for the years ended December 31, 2008, 2007, and 2006, respectively. We periodically review the carrying
amount of value of business acquired using the same methods used to evaluate deferred acquisition costs.
 Policy and contract benefits represent amounts paid and expected to be paid 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 reserves represent future policy and contract benefits for claims not yet incurred.
Policy reserves for traditional life and accident and health products are determined using the net level premium method. The reserves are
calculated based upon assumptions as to interest, persistency, morbidity, and mortality that were appropriate at the date of issue. Interest
rate assumptions are based on actual and expected net investment returns. Persistency assumptions are based on our actual historical
experience adjusted for future expectations. Morbidity and mortality assumptions are based on actual experience or industry standards
adjusted as appropriate to reflect our actual experience and future expectations. The assumptions vary by plan, year of issue, and policy
duration and include a provision for adverse deviation.
Policy reserves for 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 and future expectations. The assumptions vary by year of issue.
Policy reserves for interest-sensitive products are principally policyholder account values.
We perform loss recognition tests on our policy reserves annually, or more frequently if appropriate, using best estimate assumptions
as of the date of the test, without a provision for adverse deviation. We group the policy reserves for each major product line within a
segment when we perform the loss recognition tests. If the policy reserves determined using these best estimate assumptions are higher
than our existing policy reserves net of any deferred acquisition cost balance, the existing policy reserves are increased or deferred acquisition
costs are reduced to immediately recognize the deficiency.
Claim reserves represent future policy and contract benefits for claims that have been incurred or are estimated to have been incurred
but not yet reported to us. Our claim reserves relate primarily to disability policies and are calculated based on 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. Unlike policy reserves, claim reserves are subject
to revision as current claim experience and projections of future experience change.
 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.
Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial statement purposes and the amounts used for income tax purposes. Deferred taxes have been measured using enacted statutory
income tax rates and laws that are currently in effect. We record deferred tax assets for tax positions taken in the U.S. and other tax jurisdictions
based on our assessment of whether a position is more likely than not to be sustained upon examination based solely on its technical
merits. A valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be realized.