Unum 2014 Annual Report Download - page 75

UNUM • 2014 ANNUAL REPORT 73
Short-term and long-term debt includes contractual principal and interest payments and therefore exceeds the amount shown in the
consolidated balance sheets.
Policyholder liability maturities and the related reinsurance recoverable represent the projected payout of the current in-force
policyholder liabilities and the expected cash inflows from reinsurers for liabilities ceded and therefore incorporate uncertainties as to the
timing and amount of claim payments. We utilize extensive liability modeling to project future cash flows from the in-force business.
The primary assumptions used to project future cash flows are claim incidence rates for mortality and morbidity, claim resolution rates,
persistency rates, and interest rates. These cash flows are discounted to determine the current value of the projected claim payments.
The timing and amount of payments on policyholder liabilities may vary significantly from the projections above.
Pensions and OPEB commitments represent the expected benefit payments related to our U.S. non-qualified defined benefit pension
and other postretirement benefit plans as it is our policy to pay those benefits, as incurred, from our general assets. Our funding policy for
our U.S. qualified defined benefit and our U.K. defined benefit pension plans is to make only contributions necessary to meet minimum
funding requirements under U.S. and U.K. legislation. We do not currently expect to make any contributions to either of these plans and
therefore have not included amounts in the preceding chart. However, to the extent contributions are required, we will make the necessary
contributions to these plans.
Miscellaneous liabilities include commissions due and accrued, deferred compensation liabilities, state premium taxes payable,
amounts due to reinsurance companies, obligations to return unrestricted cash collateral to our securities lending and derivatives
counterparties, legally binding commitments to fund investments, and various other liabilities that represent contractual obligations.
Obligations where the timing of the payment is uncertain are included in the one year or less category.
See “Critical Accounting Estimates” and Notes 3, 4, 6, 8, 9, and 14 of the “Notes to Consolidated Financial Statements” contained herein
for additional information on our various commitments and obligations.
Off-Balance Sheet Arrangements
Operating leases include noncancelable obligations on certain office space, equipment, and software. Purchase obligations include
non-binding commitments of $238.4 million to fund certain of our investments. These are included in the preceding table based on the
expiration date of the commitments. The funds are due upon satisfaction of contractual notice from appropriate external parties and may
or may not be funded. Also included are obligations with outside parties for computer data processing services, software maintenance
agreements, and consulting services. The aggregate obligation remaining under these agreements was $16.8 million at December 31, 2014.
As part of our regular investing strategy, we receive collateral from unaffiliated third parties through transactions which include both
securities lending and also short-term agreements to purchase securities with the agreement to resell them at a later specified date.
For both types of transactions, we require that a minimum of 102 percent of the fair value of the securities loaned or securities purchased
under repurchase agreements be maintained as collateral. Generally, cash is received as collateral under these agreements. In the event
that securities are received as collateral, we are not permitted to sell or re-post them. We also post our fixed maturity securities as collateral
to unaffiliated third parties through transactions including both securities lending and also short-term agreements to sell securities with
the agreement to repurchase them at a later specified date. See “Transfers of Financial Assets” as follows for further discussion.
To help limit the credit exposure of derivatives, we enter into master netting agreements with our counterparties whereby contracts
in a gain position can be offset against contracts in a loss position. We also typically enter into bilateral, cross-collateralization agreements
with our counterparties to help limit the credit exposure of the derivatives. These agreements require the counterparty in a loss position
to submit acceptable collateral with the other counterparty in the event the net loss position meets or exceeds an agreed upon amount.
Our current credit exposure on derivatives, which is limited to the value of those contracts in a net gain position, including accrued interest
receivable less collateral held, was $13.6 million at December 31, 2014. We held cash collateral from our counterparties of $15.4 million
at December 31, 2014 and had posted fixed maturity securities with a carrying value of $67.0 million as collateral to our counterparties.
See Notes 3, 4, and 14 of the “Notes to Consolidated Financial Statements” contained herein for additional information.