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Insurance premiums for most of the Company's health and life policies, including cancer, accident, hospital, critical
illness, dental, vision, term life, whole life, long-term care and disability, are recognized as revenue over the premium-
paying periods of the contracts when due from policyholders. When revenues are reported, the related amounts of
benefits and expenses are charged against such revenues, so that profits are recognized in proportion to premium
revenues during the period the policies are expected to remain in force. This association is accomplished by means of
annual additions to the liability for future policy benefits and the deferral and subsequent amortization of policy acquisition
costs.
Premiums from the Company's products with limited-pay features, including term life, whole life, WAYS, and child
endowment, are collected over a significantly shorter period than the period over which benefits are provided. Premiums
for these products are recognized as revenue over the premium-paying periods of the contracts when due from
policyholders. Any gross premium in excess of the net premium is deferred and recorded in earnings, such that profits are
recognized in a constant relationship with insurance in force. Benefits are recorded as an expense when they are
incurred. A liability for future policy benefits is recorded when premiums are recognized using the net premium method.
At the policyholder's option, customers can also pay discounted advanced premiums for certain of our products.
Advanced premiums are deferred and recognized when due from policyholders over the regularly scheduled premium
payment period.
The calculation of deferred policy acquisition costs (DAC) and the liability for future policy benefits requires the use of
estimates based on sound actuarial valuation techniques. For new policy issues, we review our actuarial assumptions and
deferrable acquisition costs each year and revise them when necessary to more closely reflect recent experience and
studies of actual acquisition costs. For policies in force, we evaluate DAC by major product groupings to determine that
they are recoverable from future revenues, and any amounts determined not to be recoverable are charged against net
earnings. We have not had any material charges to earnings for DAC that was determined not to be recoverable in any of
the years presented in this Form 10-K.
Advertising expense is reported as incurred in insurance expenses in the consolidated statements of earnings.
Cash and Cash Equivalents:
Cash and cash equivalents include cash on hand, money market instruments and
other debt instruments with a maturity of 90 days or less when purchased.
Investments:
Our debt securities consist of fixed-maturity securities, which are classified as either held to maturity or
available for sale. Securities classified as held to maturity are securities that we have the ability and intent to hold to
maturity or redemption and are carried at amortized cost. All other fixed-maturity debt securities, our perpetual securities
and our equity securities are classified as available for sale and are carried at fair value. If the fair value is higher than the
amortized cost for debt and perpetual securities, or the purchase cost for equity securities, the excess is an unrealized
gain, and if lower than cost, the difference is an unrealized loss. The net unrealized gains and losses on securities
available for sale, plus the unamortized unrealized gains and losses on debt securities transferred to the held-to-maturity
portfolio, less related deferred income taxes, are recorded through other comprehensive income and included in
accumulated other comprehensive income.
Amortized cost of debt and perpetual securities is based on our purchase price adjusted for accrual of discount, or
amortization of premium, and recognition of impairment charges, if any. The amortized cost of debt and perpetual
securities we purchase at a discount or premium will equal the face or par value at maturity or the call date, if applicable.
Interest is reported as income when earned and is adjusted for amortization of any premium or discount.
We have investments in variable interest entities (VIEs). Criteria for evaluating VIEs for consolidation focuses on
identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact
the entity's economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits
from the entity. We are the primary beneficiary of certain VIEs, and therefore consolidate these entities in our financial
statements. While the VIEs generally operate within a defined set of documents, there are certain powers that are
retained by us that are considered significant in our conclusion that we are the primary beneficiary. These powers vary by
structure but generally include the initial selection of the underlying collateral or, for collateralized debt obligations (CDOs),
the reference credits to include in the structure; the ability to obtain the underlying collateral in the event of default; and
the ability to appoint or dismiss key parties in the structure. In particular, our powers surrounding the underlying collateral
were considered to be the most significant powers since those most significantly impact the economics of the VIE. We
have no obligation to provide any continuing financial support to any of the entities in which we are the primary
beneficiary. Our maximum loss is limited to our original investment. Neither we nor any of our creditors have the ability to
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