Unum 2012 Annual Report Download - page 96

Notes To Consolidated Financial Statements
94 UNUM 2012 ANNUAL REPORT
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.
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.
Mortgage Loans: Mortgage loans are generally held for investment and are carried at amortized cost less an allowance for probable
losses. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Prepayment penalties
are recognized as investment income when received.
We use a comprehensive rating system to evaluate the investment and credit risk of our mortgage loans and to identify specific
properties for further inspection, analysis, and reevaluation. For mortgage loans on which collection of investment income is uncertain,
we discontinue the accrual of investment income and recognize investment income in the period when an interest payment is received.
We typically do not resume the accrual of interest on mortgage loans on nonaccrual status until there are significant improvements in the