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113
Unum 2010 Annual Report
reports and forecasts, sector credit ratings, future business prospects and earnings trends, issuer refinancing capabilities, actual and/or
potential asset sales by the issuer, and other data relevant to the collectibility of the contractual cashows of the security. We take into
account the probability of default, expected recoveries, third party guarantees, quality of collateral, and where our debt security ranks in
terms of subordination. We may use the estimated fair value of collateral as a proxy for the present value of cash ows if we believe the
security is dependent on the liquidation of collateral for recovery of our investment. For fixed maturity securities for which we have
recognized an other-than-temporary impairment loss through earnings, if through subsequent evaluation there is a significant increase in
expected cashows, the difference between the new amortized cost basis and the cashows expected to be collected is accreted as net
investment income.
The following table presents the before-tax credit-related portion of other-than-temporary impairments on fixed maturity securities
still held as of the dates shown for which a portion of the other-than-temporary impairment was recognized in other comprehensive
income.
Period from
Year Ended April 1, 2009 to
(in millions of dollars) December 31, 2010 December 31, 2009
Balance at Beginning of Period $18.3 $ —
Credit Losses Remaining in Retained Earnings Related to the Adoption of Accounting Standard — 30.8
Impairment Recognized in the Period on Securities not Previously Impaired — 38.4
Additional Impairment Recognized in the Period on Securities Previously Impaired — 4.4
Sales or Maturities of Securities in the Period (9.8) (38.3)
Reduction for Credit Loss Impairments Previously Recognized due to Change in Intent to Sell — (17.0)
Balance at End of Year $ 8.5 $ 18.3
At December 31, 2010, we had $29.9 million in commitments to fund certain private placement fixed maturity securities. These
commitments are not legally binding and may or may not be funded.
Variable Interest Entities
We invest in variable interests issued by variable interest entities. These investments include tax credit partnerships, private equity
partnerships, and special purpose entities. For those variable interests that are not consolidated in our financial statements, we are not the
primary beneficiary because we have neither the power to direct the activities that are most significant to economic performance nor the
responsibility to absorb a majority of the expected losses. The determination of whether we are the primary beneficiary is performed at
the time of our initial investment and at the date of each subsequent reporting period.
As of December 31, 2010, the carrying amount of our variable interest entity investments that are not consolidated under the
provisions of GAAP was $370.0 million, comprised of $277.2 million of tax credit partnerships and $92.8 million of private equity
partnerships. These variable interest entity investments are reported as other long-term investments in our consolidated balance sheets.
Additionally, we recognize a liability for all legally binding unfunded commitments to these partnerships, with a corresponding
recognition of an invested asset. Our liability for legally binding unfunded commitments to the tax credit partnerships was $169.9 million at
December 31, 2010. Contractually, we are a limited partner in these investments, and our maximum exposure to loss is limited to the carrying
value of our investment. We also had commitments of $73.0 million to fund certain of the private equity partnerships at December 31, 2010.
These commitments are not legally binding and may or may not be funded during the life of the partnerships.
We are the sole beneficiary of a special purpose entity which is consolidated under the provisions of GAAP. This entity is a securitized
asset trust containing a highly rated bond for principal protection, nonredeemable preferred stock, and several partnership equity
investments. We contributed the bond and partnership investments into the trust at the time it was established. The trust supports our
investment objectives and allows us to maintain our investment in the partnerships while at the same time protecting the principal of the
investment. There are no restrictions on the assets held in this trust, and the trust is free to dispose of the assets at any time. Because the