Unum 2013 Annual Report Download - page 101

UNUM 2013 ANNUAL REPORT / 99
Claim reserves represent future policy and contract benefits for claims that have been incurred or are estimated to have been incurred
but not yet reported to us. Our claim reserves relate primarily to disability policies and are calculated based on assumptions as to interest
and claim resolution rates that are currently appropriate. Claim resolution rate assumptions are based on our actual experience. The interest
rate assumptions used for discounting claim reserves are based on projected portfolio yield rates, after consideration for defaults and
investment expenses, for the assets supporting the liabilities for the various product lines. Unlike policy reserves for which assumptions
are generally established and locked in at the time of policy issuance, claim reserves are subject to revision as current claim experience
and projections of future experience change. See Note 6.
Policyholders’ Funds: Policyholders’ funds represent customer deposits plus interest credited at contract rates. We control interest
rate risk by investing in quality assets which have an aggregate duration that closely matches the expected duration of the liabilities.
Income Tax: Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial statement purposes and the amounts used for income tax purposes. Deferred taxes have been measured using enacted
statutory income tax rates and laws that are currently in effect. We record deferred tax assets for tax positions taken in the U.S. and other
tax jurisdictions based on our assessment of whether a position is more likely than not to be sustained upon examination based solely on
its technical merits. A valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be
realized. See Note 7.
Short-term and Long-term Debt: Debt is generally carried at the unpaid principal balance, net of unamortized discount or premium.
Short-term debt consists of debt due within the next twelve months, including that portion of debt otherwise classified as long-term, and
securities lending agreements collateralized by cash. We account for all of our securities lending agreements and repurchase agreements
as collateralized financings, and the carrying amount of the related short-term debt represents our liability to return cash collateral to the
counterparty. Original issue discount or premium as well as debt issue costs are recognized as a component of interest expense over the
period the debt is expected to be outstanding. The carrying amount of long-term debt that is part of a fair value hedge program includes
an adjustment to reflect the effect of the change in fair value attributable to the risk being hedged. Net interest settlements for fair value
hedges on our long-term debt are recognized as a component of interest expense. See Note 8.
Treasury Stock and Retirement of Common Stock: Treasury stock is reflected as a reduction of stockholders’ equity at cost.
When shares are retired, the par value is removed from common stock, and the excess of the repurchase price over par is allocated
between additional paid-in capital and retained earnings.
Revenue Recognition: Traditional life and accident and health products are long-duration contracts, and premium income is
recognized as revenue when due from policyholders. If the contracts are experience rated, the estimated ultimate premium is recognized
as revenue over the period of the contract. The estimated ultimate premium, which is revised to reflect current experience, is based on
estimated claim costs, expenses, and profit margins.
For interest-sensitive products, the amounts collected from policyholders are considered deposits, and only the deductions during the
period for cost of insurance, policy administration, and surrenders are included in revenue. Policyholders’ funds represent funds deposited
by contract holders and are not included in revenue.
Fees from our administrative-services only and family medical leave products are reported as other income when services are rendered.
Reinsurance: We routinely enter into reinsurance agreements with other insurance companies to spread risk and thereby limit losses
from large exposures. For each of our reinsurance agreements, we determine if the agreement provides indemnification against loss or
liability relating to insurance risk in accordance with applicable accounting standards. If we determine that a reinsurance agreement does
not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, we record the agreement using the deposit
method of accounting.