Unum 2010 Annual Report Download - page 28

Download and view the complete annual report

Please find page 28 of the 2010 Unum annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 162

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Unum
2010
26
Approximately 87.6 percent of our DAC relates to traditional non interest-sensitive products, and we amortize DAC in proportion to the
premium income we expect to receive over the life of the policies. Key assumptions used in developing the future amortization of DAC are
future persistency and future premium income. We use our own historical experience and expectation of the future performance of our
businesses in determining the expected persistency and premium income. The estimated premium income in the early years of the
amortization period is generally higher than in the later years due to the anticipated cumulative effect of policy persistency in the early
years, which results in a greater proportion of the costs being amortized in the early years of the life of the policy. During 2010, our key
assumptions used to develop the future amortization did not change materially from those used in 2009. Generally, we do not expect our
persistency or interest rates to change significantly in the short-term, and to the extent that these trends do change, we expect those
changes to be gradual over a longer period of time.
Presented below are our current assumptions regarding the length of our amortization periods, the approximate DAC balance
that remains at the end of years 3, 10, and 15 as a percentage of the cost initially deferred, and our DAC balances as of December 31, 2010
and 2009.
Balance Remaining as a % DAC Balances
Amortization of Initial Deferral at December 31
(in millions of dollars) Period Year 3 Year 10 Year 15 2010 2009
Unum US
Group Disability 7 25% 0% 0% $ 119.0 $ 123.5
Group Life and Accidental
Death & Dismemberment 7 25% to 30% 0% 0% 93.8 87.8
Supplemental and Voluntary
Individual Disability — Recently Issued 20 75% 50% 25% 639.7 667.7
Long-term Care 20 80% 55% 30% 295.7 310.9
Voluntary Benefits 15 55% to 60% 15% 0% 509.7 472.5
Unum UK
Group Disability 3 7% 0% 0% 16.3 18.4
Group Life 3 7% 0% 0% 7.9 5.8
Supplemental and Voluntary 20 57% 17% 7% 34.0 34.7
Colonial Life 17 59% 24% 10% 805.0 761.2
Totals
$2,521.1 $2,482.5
Amortization of DAC on traditional products is adjusted to reect the actual policy persistency as compared to the anticipated
experience, and as a result, the unamortized balance of DAC reects actual persistency. We may experience accelerated amortization if
policies terminate earlier than projected. Because our actual experience regarding persistency and premium income has varied very little
from our assumptions during the last three years, we have had minimal adjustments to our projected amortization of DAC during those
years. We measure the recoverability of DAC annually by performing gross premium valuations. Our testing indicates that our DAC is
recoverable.
In October 2010, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU), now included in
Accounting Standards Codification 944 “Financial Services — Insurance,” which is intended to address diversity in practice regarding the
interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify as deferred acquisition costs. The
amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011, and
permit retrospective application. The guidance in this update will result in a decrease in the opening balance of our retained earnings if we
choose retrospective application on adoption and will result in a decrease in the level of costs we defer subsequent to adoption. Given that
application guidance is still evolving, we have not yet finalized the expected impact on our financial position or results of operations.