Unum 2012 Annual Report Download - page 102

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Notes To Consolidated Financial Statements
100 UNUM 2012 ANNUAL REPORT
Reinsurance activity is accounted for on a basis consistent with the terms of the reinsurance contracts and the accounting used for
the original policies issued. Premium income and benefits and change in reserves for future benefits are presented in our consolidated
statements of income net of reinsurance ceded. Ceded liabilities for policy and contract benefits, future policy and contract benefits, and
unearned premiums are reported on a gross basis in our consolidated balance sheets, as are ceded policy loans. Our reinsurance recoverable
includes the balances due from reinsurers under the terms of the reinsurance agreements for these ceded balances as well as settlement
amounts currently due.
Where applicable, gains or losses on reinsurance transactions are deferred and amortized into earnings based upon expected future
premium income for traditional insurance policies and estimated future gross profits for interest-sensitive insurance policies. The deferred
gain on reinsurance included in other liabilities in our consolidated balance sheets at December 31, 2012 and 2011 was $67.4 million and
$81.0 million, respectively.
Under ceded reinsurance agreements wherein we are not relieved of our legal liability to our policyholders, if the assuming reinsurer
is unable to meet its obligations, we remain contingently liable. We evaluate the financial condition of reinsurers and monitor concentration
of credit risk to minimize this exposure. We may also require assets in trust, letters of credit, or other acceptable collateral to support
our reinsurance recoverable balances. In the event that reinsurers do not meet their obligations to us under the terms of the reinsurance
agreements, certain amounts reported in our reinsurance recoverable could become uncollectible, in which case the reinsurance
recoverable balances are stated net of allowances for uncollectible reinsurance.
Premium Tax Expense: Premium tax expense is included in other expenses in the consolidated statements of income. For the years
ended December 31, 2012, 2011, and 2010, premium tax expense was $136.0 million, $134.9 million, and $129.4 million, respectively.
Stock-Based Compensation: The cost of stock-based compensation is generally measured based on the grant-date fair value of the
award. We use the Black-Scholes options valuation model for estimating the fair value of stock options. Nonvested stock awards are valued
based on the fair value of common stock at the grant date and cash-settled awards are measured each reporting period based on the
current stock price. Stock-based awards that do not require future service are expensed immediately, and stock-based awards that require
future service are amortized over the relevant service period, with an offsetting increase to additional paid-in capital in stockholders’ equity.
Earnings Per Share: We compute basic earnings per share by dividing net income by the weighted average number of common shares
outstanding for the period. Earnings per share assuming dilution is computed by dividing net income by the weighted average number of
shares outstanding for the period plus the shares representing the dilutive effect of stock-based awards. In computing earnings per share
assuming dilution, only potential common shares resulting from stock-based awards that are dilutive (those that reduce earnings per share)
are included. We use the treasury stock method to account for the effect of outstanding stock options and nonvested stock awards on the
computation of earnings per share assuming dilution.
Translation of Foreign Currency: Revenues and expenses of our foreign operations are translated at average exchange rates.
Assets and liabilities are translated at the rate of exchange on the balance sheet dates. The translation gain or loss is generally reported
in accumulated other comprehensive income, net of deferred tax. We do not provide for deferred taxes to the extent unremitted foreign
earnings are deemed permanently invested.