Unum 2012 Annual Report Download - page 81

UNUM 2012 ANNUAL REPORT 79
Unum
2012
At December 31, 2012, we had legally binding unfunded commitments, which are recognized as liabilities in our consolidated
balance sheets, of $83.7 million and $5.1 million to fund tax credit partnership investments and transferable state tax credits, respectively,
with a corresponding recognition of other long-term investments and other assets, respectively. These commitments are represented in
the purchase obligation line on the preceding schedule and will be funded over the next several years.
Off-Balance Sheet Arrangements
As noted in the preceding commitments table, we have operating lease commitments totaling $216.8 million at December 31, 2012.
Operating leases include noncancelable obligations on certain office space, equipment, and software.
Purchase obligations include off-balance sheet non-binding commitments of $29.0 million to fund certain of our investments in private
placement securities, $71.3 million to fund certain private equity partnerships, and $47.3 million to fund certain commercial mortgage
loans. These are shown in the preceding table based on the expiration date of the commitments. The funds will be due upon satisfaction of
contractual notice from the partnership trustee, issuer of the private placement securities, or borrower. The amounts may or may not be
funded. Also included are obligations with outside parties for computer data processing services and related functions and software
maintenance agreements. The aggregate obligation remaining under these agreements was $35.6 million at December 31, 2012.
As part of our regular investing strategy, we receive collateral from unaffiliated third parties through transactions which include
both securities lending and also short-term agreements to purchase securities with the agreement to resell them at a later specified date.
For both types of transactions, we require that a minimum of 102 percent of the fair value of the securities loaned or securities purchased
under repurchase agreements be maintained as collateral. Generally, cash is received as collateral under these agreements. In the event
that securities are received as collateral, we are not permitted to sell or re-post them. We also post our fixed maturity securities as collateral
to unaffiliated third parties through transactions including both securities lending and also short-term agreements to sell securities with
the agreement to repurchase them at a later specified date. See “Transfers of Financial Assets” as follows for further discussion.
To help limit the credit exposure of the derivatives, we enter into master netting agreements with our counterparties whereby
contracts in a gain position can be offset against contracts in a loss position. We also typically enter into bilateral, cross-collateralization
agreements with our counterparties to help limit the credit exposure of the derivatives. These agreements require the counterparty in a
loss position to submit acceptable collateral with the other counterparty in the event the net loss position meets or exceeds an agreed
upon amount. Our current credit exposure on derivatives, which is limited to the value of those contracts in a net gain position less
collateral held, was $8.7 million at December 31, 2012. We post fixed maturity securities or cash as collateral to our counterparties.
Fixed maturity securities with a carrying value of $108.6 million and cash of $1.8 million were posted as collateral to our counterparties
at December 31, 2012.
Our derivatives counterparties have posted non-cash collateral in various segregated custody accounts to which we have a security
interest in the event of counterparty default. This collateral, which is not reflected in the preceding table, had a fair value of $58.9 million
at December 31, 2012.
Transfers of Financial Assets
To manage our cash position more efficiently, we may 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 flows 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.