Unum 2007 Annual Report Download - page 84

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
82 Unum 2007 Annual Report
Miscellaneous liabilities include commissions due and accrued, deferred compensation liabilities, state premium taxes payable,
amounts due to reinsurance companies, and various other liabilities that represent contractual obligations. Obligations where the timing
of the payment was uncertain were included in the one year or less category.
Operating leases include noncancelable obligations on certain office space and equipment.
Purchase obligations include commitments of $35.9 million to fund certain private placement fixed maturity and equity securities
and $22.8 million for commercial mortgage loan originations. These are shown in the table above based on the expiration date of the
commitments. The funds will be due upon satisfaction of contractual notice from the trustee or issuer of the private placement securities
or at closing of the mortgage loans. The amounts may or may not be funded. Also included are noncancelable obligations with outside
parties for computer data processing services and related functions and software maintenance agreements. The aggregate obligation
remaining under these agreements was $14.4 million at December 31, 2007.
Off-Balance Sheet Arrangements
As noted in the preceding discussion, we have operating lease commitments and purchase obligations totaling $108.8 million and
$73.1 million, respectively, at December 31, 2007.
We maintain a committed and unsecured credit facility and letters of credit. See “Debt” contained herein for further description
of this arrangement.
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 repledge them. We also pledge 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. At December 31, 2007, the carrying value of fixed maturity securities
pledged as collateral to third parties under these programs was $2.0 million.
To help limit the credit exposure of the 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 less
collateral held, was $47.9 million at December 31, 2007. The carrying value of fixed maturity securities pledged as collateral to our
counterparties was $265.8 million at December 31, 2007.
Ratings
A.M. Best Company (AM Best), Fitch Ratings (Fitch), Moody’s Investors Service (Moody’s), and Standard & Poor’s Corporation (S&P)
are among the third parties that assign issuer credit ratings to Unum Group and financial strength ratings to our insurance subsidiaries.
Issuer credit ratings reflect an agency’s opinion of the overall financial capacity of a company to meet its senior debt obligations. Financial
strength ratings are specific to each individual insurance subsidiary and reflect each rating agency’s view of the overall financial strength
(capital levels, earnings, growth, investments, business mix, operating performance, and market position) of the insuring entity and its
ability to meet its obligations to policyholders. Both the issuer credit ratings and financial strength ratings incorporate quantitative and
qualitative analyses by rating agencies and are routinely reviewed and updated on an ongoing basis.