Unum 2009 Annual Report Download - page 116

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114
Notes To Consolidated Financial Statements
Unum
2009
Realized Investment Gain and Loss
Realized investment gains and losses reported in our consolidated statements of income are as follows:
Year Ended December 31
(in millions of dollars) 2009 2008 2007
Fixed Maturity Securities
Gross Gains on Sales $ 48.6 $ 64.9 $ 56.0
Gross Losses on Sales (83.5) (80.8) (29.1)
Other-Than-Temporary Impairment Loss (211.8) (151.1) (53.7)
Mortgage Loans and Other Invested Assets
Gross Gains on Sales 11.5 13.5 49.8
Gross Losses on Sales (0.4) (3.8) (8.3)
Impairment Loss (8.1) (15.0) (22.5)
Embedded Derivative in Modified
Coinsurance Arrangement 243.1 (291.7) (57.3)
Other Derivatives 12.3 (1.9) (0.1)
Net Realized Investment Gain (Loss) $ 11.7 $(465.9) $(65.2)
Note 5. Derivative Financial Instruments
Purpose of Derivatives
We are exposed to certain risks relating to our ongoing business operations. The primary risks managed by using derivative instruments
are interest rate risk, risk related to matching duration for our assets and liabilities, and foreign currency risk. Historically, we have utilized
current and forward interest rate swaps and options on forward interest rate swaps, current and forward currency swaps, interest rate
forward contracts, forward treasury locks, currency forward contracts, and forward contracts on specific fixed income securities. Almost
all hedging transactions are associated with our individual and group long-term care and individual and group disability products. All
other product portfolios are periodically reviewed to determine if hedging strategies would be appropriate for risk management purposes.
Our cash flow hedging programs are as follows:
• Interest rate swaps are used to hedge interest rate risks and to improve the matching of assets and liabilities. An interest rate swap is
an agreement in which we agree with other parties to exchange, at specified intervals, the difference between fixed rate and variable
rate interest amounts. The purpose of these swaps is to hedge the anticipated purchase of long-term bonds thereby protecting us
from the potential adverse impact of declining interest rates on the associated policy reserves. We also use interest rate swaps to
hedge the potential adverse impact of rising interest rates in anticipation of issuing fixed rate long-term debt.
• Foreign currency interest rate swaps are used to hedge the currency risk of certain foreign currency-denominated long-term bonds
owned for portfolio diversification and to hedge the currency risk associated with certain of the interest payments and debt repayments
of the U.S. dollar-denominated debt issued by one of our U.K. subsidiaries. For long-term bonds, we agree to pay, at specified intervals,
fixed rate foreign currency-denominated principal and interest payments in exchange for fixed rate payments in the functional
currency of the operating segment. For debt issued, we agree to pay, at specified intervals, fixed rate foreign currency-denominated
principal and interest payments to the counterparty in exchange for fixed rate U.S. dollar-denominated interest payment.
• Options on forward interest rate swaps are used to hedge the interest rate risk on certain insurance liabilities with minimum interest
rate guarantees. By purchasing options on interest rate swaps, we are able to lock in the minimum investment yields needed to
meet the required interest rate guarantee on the insurance liabilities.