Unum 2012 Annual Report Download - page 114

Notes To Consolidated Financial Statements
112 UNUM 2012 ANNUAL REPORT
Realized and unrealized investment gains and losses presented in the preceding tables represent gains and losses only for the time
during which the applicable financial instruments were classified as Level 3. The transfers between levels resulted primarily from a change
in observability of three inputs used to determine fair values of the securities transferred: (1) transactional data for new issuance and
secondary trades, (2) broker/dealer quotes and pricing, primarily related to changes in the level of activity in the market and whether the
market was considered orderly, and (3) comparable bond metrics from which to perform an analysis. For fair value measurements of
financial instruments that were transferred either into or out of Level 3, we reflect the transfers using the fair value at the beginning of the
period. Gains (losses) for the years ended December 31, 2012 and 2011 which are included in earnings and are attributable to the change
in unrealized gains or losses relating to assets or liabilities valued using significant unobservable inputs and still held at each year end were
$51.8 million and $(39.4) million, respectively. These amounts relate entirely to the changes in fair value of an embedded derivative in a
modified coinsurance arrangement which are reported as realized investment gains and losses.
Quantitative information regarding the significant unobservable inputs used in Level 3 fair value measurements, all of which are
internally derived, is as follows:
December 31, 2012
(in millions of dollars) Fair Value Unobservable Input Range/Weighted Average
Fixed Maturity Securities
Public Utilities $ 17.4 Comparability Adjustment (b) 0.20%-0.20%/0.20%
States, Municipalities, and 42.7 Comparability Adjustment (b) 0.25%-0.25%/0.25%
Political Subdivisions — Private Lack of Marketability (d) 0.25%-0.25%/0.25%
Volatility of Credit (e) 0.15%-0.15%/0.15%
Mortgage/Asset-Backed 0.5 Discount for Size (c) 5.74%-5.84%/5.81%
Securities — Private
All Other Corporate 391.8 Change in Benchmark Reference (a) 0.04%-2.89%/0.28%
Bonds — Private Comparability Adjustment (b) 1.48%-1.48%/1.48%
Discount for Size (c) 0.10%-0.50%/0.24%
Lack of Marketability (d) 0.10%-1.00%/0.46%
Volatility of Credit (e) (0.25)%-7.72%/1.51%
Market Convention (f) Priced at Par
All Other Corporate 165.0 Change in Benchmark Reference (a) 0.25%-0.25%/0.25%
Bonds — Public Comparability Adjustment (b) (0.59)%-1.00%/0.27%
Discount for Size (c) 0.25%-0.25%/0.25%
Lack of Marketability (d) 0.20%-0.30%/0.24%
Volatility of Credit (e) (0.30)%-(0.30)%/(0.30)%
Market Convention (f) Priced at Par
Equity Securities — Private 4.0 Market Convention (f) Priced at Cost or Owner’s Equity
Embedded Derivative in Modified (83.9) Projected Liability Cash Flows (g) Actuarial Assumptions
Coinsurance Arrangement
(a) Represents basis point adjustments for changes in benchmark spreads associated with various ratings categories
(b) Represents basis point adjustments for changes in benchmark spreads associated with various industry sectors
(c) Represents basis point adjustments based on issue/issuer size relative to the benchmark
(d) Represents basis point adjustments to apply a discount due to the illiquidity of an investment
(e) Represents basis point adjustments for credit-specific factors
(f) Represents a decision to price based on par value, cost, or owner’s equity when limited data is available
(g) Represents various actuarial assumptions required to derive the liability cash flows including incidence, termination, and lapse rates