Unum 2011 Annual Report Download - page 102

Notes To Consolidated Financial Statements
Unum 2011 Annual Report
100
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 quarterly 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 quarterly 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, or more frequently if appropriate, using best estimate assumptions
as to future experience as of the date of the test. 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.
Goodwill: 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: 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 $670.9 million and
$641.6 million as of December 31, 2011 and 2010, respectively.
Value of Business Acquired: 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 our consolidated balance sheets, was $30.3 million and $37.6 million at December 31, 2011 and 2010,
respectively. The accumulated amortization for value of business acquired was $119.3 million and $112.5 million as of December 31, 2011
and 2010, respectively.
The amortization of value of business acquired, which is included in other expenses in the consolidated statements of income, was
$7.4 million, $7.4 million, and $7.8 million for the years ended December 31, 2011, 2010, and 2009, 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: 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.