Unum 2011 Annual Report Download - page 100

Download and view the complete annual report

Please find page 100 of the 2011 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 172

  • 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
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172

Notes To Consolidated Financial Statements
Unum 2011 Annual Report
98
Cash and Bank Deposits: Cash and bank deposits include cash on hand and non-interest bearing cash and deposit accounts.
Derivative Financial Instruments: Derivative financial instruments (including certain derivative instruments embedded in other
contracts) are recognized as either assets or liabilities in our consolidated balance sheets and are reported at fair value. The accounting for
changes in fair value 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 for hedge accounting, at the inception of the hedging transaction, we formally document the
risk management objective and strategy for undertaking the hedging transaction, as well as the designation of the hedge as either a fair
value hedge or a cash flow hedge. Included in this documentation is how the hedging instrument is expected to hedge the designated
risk(s) related to specific assets or liabilities on the balance sheet or to specific forecasted transactions as well as a description of the
method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method that will be
used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting
the designated risk(s) of the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the
designated hedging relationship, using qualitative and quantitative methods. Qualitative methods include comparison of critical terms of
the derivative to the hedged item. Quantitative methods include regression or other statistical analysis of changes in fair value or cash
flows associated with the hedge relationship. 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, including amounts measured as ineffectiveness, and changes in the
fair value of the hedged item attributable to the risk being hedged are recognized in current earnings as a component of net realized
investment gain or loss during the period of change in fair value. The gain or loss on the termination of a fair value hedge is
recognized in current earnings as a component of net realized investment gain or loss. When interest rate swaps are used in hedge
accounting relationships, periodic settlements are recorded in the same income statement line as the related settlements of the
hedged items.
• 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 and reported on the same income statement line item as the hedged item and 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
as a component of net realized investment gain or loss 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 and reported on the same
income statement line item as the hedged item and in the same period or periods during which the hedged item affects earnings.
Gains or losses on the termination of ineffective hedges are reported in current earnings as a component of net realized investment
gain or loss. In the event a hedged item is disposed of or the anticipated transaction being hedged is no longer likely to occur, we will
terminate the related derivative and recognize the gain or loss on termination in current earnings as a component of net realized
investment gain or loss. In the event a hedged item is disposed of subsequent to the termination of the hedging transaction, we reclassify
any remaining gain or loss on the cash flow hedge out of accumulated other comprehensive income into current earnings as a component
of the same income statement line item wherein we report the gain or loss on disposition of the hedged item.
Our freestanding derivatives all qualify as hedges and have been designated as either cash flow hedges or fair value hedges. We do
not have any speculative positions in our freestanding derivatives. For a derivative not designated as a hedging instrument, the change in
fair value is recognized in earnings during the period of change. Changes in the fair values of certain embedded derivatives are reported
as a component of net realized investment gain or loss during the period of change.
In our consolidated balance sheets, we do not offset fair value amounts recognized for derivatives executed with the same
counterparty under a master netting agreement and fair value amounts recognized for the right to reclaim cash collateral or the obligation
to return cash collateral arising from those master netting agreements.