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We measure our financial instruments’ market risk related to changes in interest rates using a sensitivity analysis. This analysis estimates
potential changes in fair values as of December 31, 2009 and 2008 based on a hypothetical immediate increase of 100 basis points in interest
rates from year end levels. The selection of a 100 basis point immediate parallel change in interest rates should not be construed as our
prediction of future market events, but only as an illustration of the potential effect of such an event.
The hypothetical potential changes in fair value of our financial instruments at December 31, 2009 and 2008 are shown as follows:
December 31, 2009
Notional Hypothetical
(in millions of dollars) Amount of Derivatives Fair Value FV + 100 BP Change in FV
Assets
Fixed Maturity Securities (1) $37,914.4 $34,930.8 $(2,983.6)
Mortgage Loans 1,402.5 1,336.4 (66.1)
Policy Loans, Net of Reinsurance Ceded 232.0 219.9 (12.1)
Liabilities
Unrealized Adjustment to Reserves,
Net of Reinsurance Ceded and Other (2) $ (1,541.7) $ 113.3 $ 1,655.0
Long-term Debt (2,296.0) (2,204.1) 91.9
Derivatives (1)
Swaps $1,615.9 $ (63.1) $ (87.9) $ (24.8)
Forwards 4.8 (0.4) (0.2) 0.2
Embedded Derivative in Modified
Coinsurance Arrangement (117.4) (121.5) (4.1)
December 31, 2008
Notional Hypothetical
(in millions of dollars) Amount of Derivatives Fair Value FV + 100 BP Change in FV
Assets
Fixed Maturity Securities (1) $32,134.1 $29,719.2 $(2,414.9)
Mortgage Loans 1,224.4 1,158.6 (65.8)
Policy Loans, Net of Reinsurance Ceded 255.4 242.4 (13.0)
Liabilities
Unrealized Adjustment to Reserves,
Net of Reinsurance Ceded and Other (2) $ 809.8 $ 1,921.9 $ 1,112.1
Short-term Debt (188.9) (188.5) 0.4
Long-term Debt (1,677.4) (1,614.4) 63.0
Derivatives (1)
Swaps $2,265.8 $ 242.2 $ 156.2 $ (86.0)
Forwards 266.3 60.2 65.0 4.8
Embedded Derivative in Modified
Coinsurance Arrangement (360.5) (330.3) 30.2
(1) These assets and liabilities are carried at fair value in our consolidated balance sheets. Changes in fair value resulting from changes in interest rates may affect the fair
value at which the item is reported in our consolidated balance sheets with a corresponding offsetting change reported in other comprehensive income or loss, net of
deferred taxes.
(2) The adjustment to reserves and other for unrealized investment gains and losses reflects the adjustments to deferred acquisition costs and policyholder liabilities that
would be necessary if the unrealized investment gains and losses related to the fixed maturity securities and derivatives had been realized. Changes in this adjustment
are also reported as a component of other comprehensive income or loss, net of deferred taxes.
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Unum 2009 Annual Report