Unum 2006 Annual Report Download - page 125

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
107
Note 1 - Significant Accounting Policies - Continued
Policy Loans are presented at unpaid balances directly related to policyholders. Included in policy loans are
$3,238.1 million and $3,005.4 million of policy loans ceded to reinsurers at December 31, 2006 and 2005,
respectively.
Other Long-term Investments, primarily private equity fund limited partnerships, are generally carried at cost plus
our share of changes in the investee’s ownership equity since acquisition.
Short-term Investments are carried at cost.
Fixed maturity securities include bonds and redeemable preferred stocks. Fixed maturity securities not bought and
held for the purpose of selling in the near term but for which we do not have the positive intent and ability to hold to
maturity are classified as available-for-sale.
Changes in the fair value of available-for-sale fixed maturity securities are reported as a component of other
comprehensive income. These amounts are net of income tax and valuation adjustments to reserves for future policy
and contract benefits which would have been recorded had the related unrealized gain or loss on these securities
been realized.
Realized investment gains and losses, which are reported as a component of revenue in the consolidated statements
of operations, are based upon specific identification of the investments sold and do not include amounts allocable to
separate accounts. At the time a decline in the value of an investment is determined to be other than temporary, a
loss is recorded which is included in realized investment gains and losses.
We discontinue the accrual of investment income on invested assets when collection is uncertain. We recognize
investment income on impaired investments when the income is received.
Derivative Financial Instruments: We recognize all of our derivative instruments (including certain derivative
instruments embedded in other contracts) as either assets or liabilities in our consolidated balance sheets and
measure those instruments at fair value.
The accounting for changes in the fair value (i.e., gain or loss) of a derivative depends on whether it has been
designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. To
qualify as a hedging instrument, a derivative must pass prescribed effectiveness tests, performed quarterly using
both qualitative and quantitative methods. For those derivatives that are designated and qualify as hedging
instruments, the derivative is designated, based upon the exposure being hedged, as one of the following:
Fair value hedge. Changes in the fair value of the derivative as well as the offsetting change in fair value
on the hedged item attributable to the risk being hedged are recognized in current earnings during the
period of change in fair value. The gain or loss on the termination of an effective fair value hedge is
recognized in current earnings.
Cash flow hedge. To the extent it is effective, changes in the fair value of the derivative are reported in
other comprehensive income and reclassified into earnings in the same period or periods during which the
hedged item affects earnings. The ineffective portion of the hedge, if any, is recognized in current earnings
during the period of change in fair value. The gain or loss on the termination of an effective cash flow
hedge is reported in other comprehensive income and reclassified into earnings in the same period or
periods during which the hedged item affects earnings.
Foreign currency exposure hedge. To the extent it is effective, changes in the fair value of the derivative
are reported in other comprehensive income as part of the foreign currency translation adjustment and