Unum 2007 Annual Report Download - page 95

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Unum 2007 Annual Report 93
Real Estate classified as investment real estate is carried at cost less accumulated depreciation. Real estate acquired through
foreclosure is valued at fair value at the date of foreclosure. If investment real estate is determined to be other than temporarily impaired,
the carrying amount of the asset is reduced to fair value. Occasionally, investment real estate is reclassified to real estate held for sale
when it no longer meets our investment criteria. Real estate held for sale is valued net of a valuation allowance that reduces the carrying
value to the lower of cost less accumulated depreciation or fair value less estimated cost to sell. Accumulated depreciation on real estate
was $9.7 million and $9.5 million as of December 31, 2007 and 2006, respectively.
Policy Loans are presented at unpaid balances directly related to policyholders. Interest income is accrued on the principal amount
of the loan based on the loan’s contractual interest rate. Included in policy loans are $2,422.0 million and $3,238.1 million of policy loans
ceded to reinsurers at December 31, 2007 and 2006, 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.
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.
Realized investment gains and losses, which are reported as a component of revenue in the consolidated statements of income, 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.
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 reclassified into earnings in the same period or
periods during which remeasurement of the hedged foreign currency asset 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
foreign currency exposure hedge is reported in other comprehensive income as part of the foreign currency translation adjustment
and reclassified into earnings in the same period or periods during which remeasurement of the hedged foreign currency asset
affects earnings.