Unum 2008 Annual Report Download - page 105

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Mortgage Loans are generally carried at amortized cost less an allowance for probable losses. Interest income is accrued on the principal
amount of the loan based on the loan’s contractual interest rate. Payment terms specified for mortgage loans may include a prepayment penalty
for unscheduled payoff of the investment. Prepayment penalties are recognized as investment income when received.
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 $2,555.6 million and $2,422.0 million of policy loans ceded
to reinsurers at December 31, 2008 and 2007, respectively.
Other Long-term Investments are comprised primarily of freestanding derivatives with a net positive fair value and private equity fund
limited partnerships. For determining whether the fair value of freestanding derivatives is a net positive, the derivatives are grouped by
counterparty for which a master netting agreement has been executed. 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. Short-term investments include investments maturing within one year, such as corporate
commercial paper and U.S. Treasury bills, bank term deposits, and other cash accounts and cash equivalents earning interest.
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.
 Cash and bank deposits include cash on hand and non-interest bearing cash and deposit accounts.
 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.