Unum 2008 Annual Report Download - page 121

Download and view the complete annual report

Please find page 121 of the 2008 Unum annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 158

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158

117

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 $37.7 million at December 31, 2008. As of December 31, 2008, we held cash collateral of $174.3 million from our counterparties. This
unrestricted cash collateral is included in short-term investments and the associated obligation to return the collateral to our counterparties
is included in other liabilities in the consolidated balance sheets. We post fixed maturity securities as collateral to our counterparties rather
than cash. The carrying value of fixed maturity securities posted as collateral to our counterparties was $107.9 million at December 31, 2008.
During 2008, we terminated certain of our outstanding derivatives when the credit ratings of the counterparty fell below our
internal investment policy guidelines. At the time of termination, the contracts were in a loss position of $39.1 million. Consistent with our
collateralization agreement, we had previously posted securities as collateral. As of December 31, 2008, these securities, which had a fair
value of $47.6 million, had not been returned to us by the counterparty. As a result, we had not paid the termination amount due to the
counterparty. The amount payable to the counterparty is included in other liabilities in our consolidated balance sheets. We believe we will
ultimately receive the value of our collateral, net of the termination amount owed, although the timing of the resolution is uncertain.
Hedging Activity
The table below summarizes by notional amounts the activity for each category of derivatives.
Swaps
Receive Receive Receive
Variable/Pay Fixed/Pay Fixed/Pay
(in millions of dollars) Fixed Fixed Variable Forwards Options Total
 $ — $1,090.4 $2,760.0 $408.1 $348.0 $4,606.5
Additions — — 1,860.0 109.8 170.0 2,139.8
Terminations — 64.2 2,435.0 125.0 348.0 2,972.2
 — 1,026.2 2,185.0 392.9 170.0 3,774.1
Additions — — 407.5 179.5 230.0 817.0
Terminations — 80.6 947.5 257.3 320.0 1,605.4
 — 945.6 1,645.0 315.1 80.0 2,985.7
Additions 174.0 224.0 742.0 35.0 — 1,175.0
Terminations — 237.8 1,227.0 83.8 80.0 1,628.6
         
The following table summarizes the timing of anticipated settlements of interest rate swaps outstanding at December 31, 2008,
whereby we receive a fixed rate and pay a variable rate. The weighted average interest rates assume current market conditions.
(in millions of dollars) 2009 2010 2011 2012 2013 Total

Notional Value $380.0 $240.0 $205.0 $185.0 $150.0 $1,160.0
Weighted Average Receive Rate 5.34% 5.67% 5.87% 6.49% 6.34% 5.81%
Weighted Average Pay Rate 1.43% 1.43% 1.43% 1.43% 1.43% 1.43%
Our freestanding derivatives all qualify as hedges under Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for
Derivative Instruments and Hedging Activities, and have been designated as either cash flow hedges or fair value hedges.