Unum 2012 Annual Report Download - page 32

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
30 UNUM 2012 ANNUAL REPORT
The following 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, 2012 and 2011.
Balance Remaining as a % DAC Balances
Amortization of Initial Deferral at December 31
Period Year 3 Year 10 Year 15 2012 2011
Unum US
Group Disability 7 25% 0% 0% $ 47.4 $ 39.4
Group Life and Accidental
Death & Dismemberment 7 25% to 30% 0% 0% 40.7 32.0
Supplemental and Voluntary:
Individual Disability — Recently Issued 20 70% to 75% 50% 25% 449.1 458.0
Voluntary Benefits 15 60% 15% 0% 487.1 442.4
Unum UK
Group Disability 3 7% 0% 0% 4.1 4.8
Group Life 3 7% 0% 0% 3.2 3.5
Supplemental and Voluntary 20 57% 17% 7% 31.5 32.6
Colonial Life
Accident, Sickness, and Disability 15 47% 13% 2% 328.9 304.9
Life 25 72% 36% 18% 195.4 199.2
Cancer and Critical Illness 19 61% 27% 11% 168.1 160.3
Totals
$1,755.5 $1,677.1
Amortization of DAC is adjusted to reflect actual experience for assumptions which deviate compared to the anticipated experience.
Any deviations from projections may result in a change to the rate of amortization in the period such events occur. As an example, for our
traditional products, we may experience accelerated amortization if policies terminate earlier than projected, or we may experience a
slower rate of amortization if policies persist longer than projected. Our actual experience has not varied materially from our assumptions
during the last three years.
We measure the recoverability of DAC by performing loss recognition tests in the fourth quarter of each year, but more frequently if
appropriate, using best estimate assumptions as of the date of the test. Insurance contracts are grouped for each major product line within
a segment when we perform loss recognition tests. If loss recognition testing indicates that DAC is not recoverable, the deficiency is
charged to expense. Our loss recognition testing during the fourth quarter of 2011 indicated impairment of our long-term care DAC,
and the balance of $196.0 million as of December 31, 2011 was charged to expense. See “Long-term Care Strategic Review” contained
herein for further discussion.
In October 2010, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update, now included in Accounting
Standards Codification 944 “Financial Services — Insurance,” 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 the update
modified the existing guidance and require that only incremental direct costs associated with the successful acquisition of a new or renewal
insurance contract can be capitalized. All other costs are to be expensed as incurred. See Note 1 of the “Notes to Consolidated Financial
Statements” contained herein for further discussion of our retrospective adoption of this update.