Unum 2013 Annual Report Download - page 106

104 / UNUM 2013 ANNUAL REPORT
Notes To Consolidated Financial Statements
Miscellaneous Long-term Investments: Carrying amounts for tax credit partnerships equal the unamortized balance of our contractual
commitments and approximate fair value. Fair values for private equity partnerships are primarily derived from net asset values provided
by the general partner in the partnerships’ financial statements. Our private equity partnerships represent funds that are primarily invested
in power, energy, railcar leasing, infrastructure development, and mezzanine debt. Distributions received from the funds arise from income
generated by the underlying investments as well as the liquidation of the underlying investments. As of December 31, 2013, we estimate
that the underlying assets of the funds will be liquidated over the next one to ten years. These financial instruments are assigned a Level 3
within the fair value hierarchy.
Policyholders’ Funds: Policyholders’ funds are comprised primarily of deferred annuity products and supplementary contracts
without life contingencies and represent customer deposits plus interest credited at contract rates. Carrying amounts approximate fair value.
These financial instruments are assigned a Level 3 within the fair value hierarchy.
Fair values for insurance contracts other than investment contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in our overall management of interest rate risk, which seeks to minimize
exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.
Long-term Debt: Fair values for long-term debt are obtained from independent pricing services or discounted cash flow analyses
based on current incremental borrowing rates for similar types of borrowing arrangements. Debt instruments which are valued using
active trades from independent pricing services for which there was current market activity in that specific debt instrument have fair values
of $1,329.2 million and $1,212.0 million as of December 31, 2013 and 2012, respectively, and are assigned a Level 1 within the fair value
hierarchy. Debt instruments which are valued based on prices from pricing services that generally use observable inputs for securities or
comparable securities in active markets in their valuation techniques have fair values of $1,495.2 million and $1,756.8 million as of
December 31, 2013 and 2012, respectively, and are assigned a Level 2.
Unfunded Commitments to Investment Partnerships: Unfunded equity commitments represent legally binding amounts that we
have committed to certain investment partnerships subject to the partnerships meeting specified conditions. When these conditions are
met, we are obligated to invest these amounts in the partnerships. Carrying amounts approximate fair value. These financial instruments
are assigned a Level 2 within the fair value hierarchy.
Fair Value Measurements for Financial Instruments Carried at Fair Value
We report fixed maturity securities, derivative financial instruments, and equity securities at fair value in our consolidated balance
sheets. The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing
observability. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively
quoted prices in active markets generally have more pricing observability and less judgment utilized in measuring fair value. An active
market for a financial instrument is a market in which transactions for an asset or a similar asset occur with sufficient frequency and
volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair
value and should be used to measure fair value whenever available. Conversely, financial instruments rarely traded or not quoted have
less observability and are measured at fair value using valuation techniques that require more judgment. Pricing observability is generally
impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and
not yet established, the characteristics specific to the transaction, and overall market conditions.
Valuation techniques used for assets and liabilities accounted for at fair value are generally categorized into three types. The market
approach uses prices and other relevant information from market transactions involving identical or comparable assets or liabilities. The
income approach converts future amounts, such as cash flows or earnings, to a single present amount, or a discounted amount. The cost
approach is based upon the amount that currently would be required to replace the service capacity of an asset, or the current replacement cost.