Unum 2010 Annual Report Download - page 80

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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Unum
2010
78
Transfers of Financial Assets
To manage our cash position more efficiently, we enter into repurchase agreements with unaffiliated financial institutions. We
generally use repurchase agreements as a means to finance the purchase of invested assets or for short-term general business purposes
until projected cash ows become available from our operations or existing investments. Our repurchase agreements are typically
outstanding for less than 30 days. We post collateral through our repurchase agreement transactions whereby the counterparty commits
to purchase securities with the agreement to resell them to us at a later, specified date. The fair value of collateral posted is generally
102 percent of the cash received.
As previously noted, our investment policy also permits us to lend fixed maturity securities to unaffiliated financial institutions
in short-term securities lending transactions, which increase our investment income with minimal risk. We had no securities lending
transactions during 2010.
We account for all of our securities lending transactions and repurchase agreements as collateralized financings. We had no repurchase
agreements outstanding at December 31, 2010. The average balance during 2010 was $39.4 million, and the maximum amount
outstanding at any month end was $150.4 million. Our use of repurchase agreements can uctuate during any given period, depending on
our liquidity position, the availability of long-term investments that meet our purchasing criteria, and our general business needs.
Ratings
AM Best, Fitch, Moody’s, and 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 reect an agency’s opinion of the overall nancial capacity of a company to meet
its senior debt obligations. Financial strength ratings are specic to each individual insurance subsidiary and reect 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.
We compete based in part on the financial strength ratings provided by rating agencies. A downgrade of our financial strength ratings
can be expected to adversely affect us and could potentially, among other things, adversely affect our relationships with distributors of our
products and services and retention of our sales force, negatively impact persistency and new sales, particularly large case group sales and
individual sales, and generally adversely affect our ability to compete. A downgrade in the issuer credit rating assigned to Unum Group can
be expected to adversely affect our cost of capital or our ability to raise additional capital.
The table below reects the issuer credit ratings for Unum Group and the nancial strength ratings for each of our traditional insurance
subsidiaries as of the date of this filing.
AM Best Fitch Moody’s S&P
Issuer Credit Ratings bbb (Good) BBB (Good) Baa3 (Moderate) BBB- (Good)
Financial Strength Ratings
Provident Life & Accident A (Excellent) A (Strong) A3 (Good) A- (Strong)
Provident Life & Casualty A (Excellent) A (Strong) Not Rated Not Rated
Unum Life of America A (Excellent) A (Strong) A3 (Good) A- (Strong)
First Unum Life A (Excellent) A (Strong) A3 (Good) A- (Strong)
Colonial Life & Accident A (Excellent) A (Strong) A3 (Good) A- (Strong)
Paul Revere Life A (Excellent) A (Strong) A3 (Good) A- (Strong)
Paul Revere Variable B++ (Good) A (Strong) A3 (Good) Not Rated
Unum Limited Not Rated Not Rated Not Rated A- (Strong)