Unum 2011 Annual Report Download - page 122

Notes To Consolidated Financial Statements
Unum 2011 Annual Report
120
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, 2011, the carrying amount of our variable interest entity investments that are not consolidated under the provisions
of GAAP was $428.3 million, comprised of $329.9 million of tax credit partnerships and $98.4 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 $160.6 million
at December 31, 2011. 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 non-binding commitments of $65.4 million to fund certain private equity partnerships at
December 31, 2011.
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
assets in the trust are not liquid investments, we periodically provide funding to the underlying partnerships in the trust upon satisfaction
of contractual notice from the partnerships. The fair values of the bond, nonredeemable preferred stock, and partnerships were
$121.3 million, $0.1 million, and $8.0 million, respectively, as of December 31, 2011. The bonds are reported as fixed maturity securities,
and the nonredeemable preferred stock and partnerships are reported as other long-term investments in our consolidated balance sheets.
At December 31, 2011, we had non-binding commitments to fund approximately $0.5 million to the underlying partnerships. The amount
of funding provided to the partnerships during the years ended December 31, 2011 and 2010 was de minimis.
Mortgage Loans
Our mortgage loan portfolio is well diversified by both geographic region and property type to reduce risk of concentration. All of our
mortgage loans are collateralized by commercial real estate. When issuing a new loan, our general policy is not to exceed a loan-to-value
ratio, or the ratio of the loan balance to the estimated fair value of the underlying collateral, of 75 percent. We update the loan-to-value
ratios at least every three years for each loan, and properties undergo a general inspection at least every two years. Our general policy for
newly issued loans is to have a debt service coverage ratio greater than 1.25 times on a normalized 25 year amortization period.
We update our debt service coverage ratios annually.