Unum 2011 Annual Report Download - page 98

Notes To Consolidated Financial Statements
Unum 2011 Annual Report
96
Note 1. Significant Accounting Policies
Basis of Presentation: The accompanying consolidated financial statements of Unum Group and its subsidiaries (the Company) have
been prepared in accordance with U.S. generally accepted accounting principles (GAAP). Such accounting principles differ from statutory
accounting principles (see Note 14). Intercompany transactions have been eliminated. In connection with our preparation of the consolidated
financial statements, we evaluated events that occurred subsequent to December 31, 2011, for recognition or disclosure in our financial
statements and notes to our financial statements.
Description of Business: We are the largest provider of group and individual disability products in the United States and the United
Kingdom. We also provide a complementary portfolio of other insurance products, including life insurance, employer- and employee-paid
group benefits, and other related services. We market our products primarily to employers interested in providing benefits to their employees.
We have three major business segments: Unum US, Unum UK, and Colonial Life. Our other reporting segments are Closed Block and
Corporate. See Note 12 for further discussion of our operating segments.
Use of Estimates: The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions
that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the
future as more information becomes known, which could impact the amounts reported and disclosed herein.
Fixed Maturity Securities: Fixed maturity securities include long-term bonds and redeemable preferred stocks. Fixed maturity securities
not bought and held for the purpose of selling in the near term but for which we do not have the positive intent and ability to hold to
maturity are classified as available-for-sale and reported at fair value. Changes in the fair value of available-for-sale fixed maturity securities,
except for amounts related to other-than-temporary impairment losses recognized in earnings, are reported as a component of other
comprehensive income. These amounts are net of income tax and valuation adjustments to deferred acquisition costs and reserves for future
policy and contract benefits which would have been recorded had the related unrealized gain or loss on these securities been realized.
Interest income is recorded as part of net investment income when earned, using an effective yield method giving effect to
amortization of premium and accretion of discount. Included within fixed maturity securities are mortgage-backed and asset-backed
securities. We recognize investment income on these securities using a constant effective yield based on projected prepayments of the
underlying loans and the estimated economic life of the securities. Actual prepayment experience is reviewed periodically, and effective
yields are recalculated when differences arise between prepayments originally projected and the actual prepayments received and
currently projected. The effective yield is recalculated on a retrospective basis, and the adjustment is reflected in net investment income.
For fixed maturity securities on which collection of investment income is uncertain, we discontinue the accrual of investment income and
recognize investment income when interest and dividends are received. Payment terms specified for fixed maturity securities may include
a prepayment penalty for unscheduled payoff of the investment. Prepayment penalties are recognized as investment income when received.
In determining when a decline in fair value below amortized cost of a fixed maturity security is other than temporary, we evaluate
available information, both positive and negative, in reaching our conclusions. Although available and applicable factors are considered in
our analysis, our expectation of recovering the entire amortized cost basis of the security, whether we intend to sell the security, whether it
is more likely than not that we will be required to sell the security before recovery of its amortized cost, and whether the security is current
on principal and interest payments are the most critical factors in determining whether impairments are other than temporary. The
significance of the decline in value and the length of time during which there has been a significant decline are also important factors, but
we generally do not record an impairment loss based solely on these two factors, since often other more relevant factors will impact our
evaluation of a security. See also Notes 2 and 3.