Unum 2014 Annual Report Download - page 119

UNUM • 2014 ANNUAL REPORT 117
Transfers of Financial Assets
To manage our cash position more efficiently, we may enter into repurchase agreements with unaffiliated financial institutions.
We generally use repurchase agreements as a means to finance the purchase of invested assets or for short-term general business purposes
until projected cash flows become available from our operations or existing investments. Our repurchase agreements are typically
outstanding for less than 30 days. We post collateral through our repurchase agreement transactions whereby the counterparty commits
to purchase securities with the agreement to resell them to us at a later, specified date. The fair value of collateral posted is generally
102 percent of the cash received.
Our investment policy also permits us to lend fixed maturity securities to unaffiliated financial institutions in short-term securities
lending agreements. These agreements increase our investment income with minimal risk. Our securities lending policy requires that a
minimum of 102 percent of the fair value of the securities loaned be maintained as collateral. Generally, cash is received as collateral under
these agreements and is typically reinvested in short-term investments. In the event that securities are received as collateral, we are not
permitted to sell or re-post them.
As of December 31, 2014, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program
was $176.5 million, for which we received collateral in the form of cash and securities of $58.4 million and $128.5 million, respectively.
As of December 31, 2013, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was
$201.6 million, for which we received collateral in the form of cash and securities of $76.5 million and $132.9 million, respectively. We had
no outstanding repurchase agreements at December 31, 2014 or 2013.
During 2014, we were approved for membership of the Federal Home Loan Bank System (FHLB). As a member, we obtain access
to low-cost funding and also receive dividends based on our stock ownership. Membership requires that we purchase a minimum amount
of FHLB common stock based on a percentage of our total assets. Additional common stock purchases are required based upon the amount of
funds borrowed from the FHLB. We will be required to post mortgage-related assets, U.S. Treasury securities, or other acceptable forms
of collateral for any borrowings we make from the FHLB. As of December 31, 2014 we had not funded any FHLB common stock purchases
or obtained any advances from the FHLB. We expect to fund our initial common stock membership purchase in the first quarter of 2015
at a cost of approximately $17.7 million, $12.5 million of which was a non-binding commitment as of December 31, 2014.
Offsetting of Financial Instruments
We enter into master netting agreements with each of our derivatives counterparties. These agreements provide for conditional
rights of set-off upon the occurrence of an early termination event. An early termination event is considered a default, and it allows the
non-defaulting party to offset its contracts in a loss position against any gain positions or payments due to the defaulting party. Under
our agreements, default type events are defined as failure to pay or deliver as contractually agreed, misrepresentation, bankruptcy,
or merger without assumption. See Note 4 for further discussion of collateral related to our derivative contracts.
We have securities lending agreements with unaffiliated financial institutions that post collateral to us in return for the use of our fixed
maturity securities. A right of set-off exists that allows us to keep and apply collateral received in the event of default by the counterparty.
Default within a securities lending agreement would typically occur if the counterparty failed to return the securities borrowed from us as
contractually agreed. In addition, if we default by not returning collateral received, the counterparty has a right of set-off against our
securities or any other amounts due to us.