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UNUM 2013 ANNUAL REPORT / 107
At December 31, 2013, approximately 6.0 percent of our fixed maturity securities were valued using active trades from TRACE pricing
or broker market maker prices for which there was current market activity in that specific security (comparable to receiving one binding
quote). The prices obtained were not adjusted, and the assets were classified as Level 1, the highest category of the three-level fair value
hierarchy classification wherein inputs are unadjusted and represent quoted prices in active markets for identical assets or liabilities.
The remaining 94.0 percent of our fixed maturity securities were valued based on non-binding quotes or other observable and
unobservable inputs, as discussed below.
• Approximately 76.0 percent of our fixed maturity securities were valued based on prices from pricing services that generally use
observable inputs such as prices for securities or comparable securities in active markets in their valuation techniques. These assets
were classified as Level 2. Level 2 assets or liabilities are those valued using inputs (other than prices included in Level 1) that are
either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for
the duration of the instrument’s anticipated life.
• Approximately 4.1 percent of our fixed maturity securities were valued based on one or more non-binding broker price levels,
if validated by observable market data, or on TRACE prices for identical or similar assets absent current market activity. When only
one price is available, it is used if observable inputs and analysis confirms that it is appropriate. These assets, for which we were
able to validate the price using other observable market data, were classified as Level 2.
• Approximately 13.9 percent of our fixed maturity securities were valued based on prices of comparable securities, matrix pricing,
market models, and/or internal models or were valued based on non-binding quotes with no other observable market data. These
assets were classified as either Level 2 or Level 3, with the categorization dependent on whether there was other observable market
data. Level 3 is the lowest category of the fair value hierarchy and reflects the judgment of management regarding what market
participants would use in pricing assets or liabilities at the measurement date. Financial assets and liabilities categorized as Level 3
are generally those that are valued using unobservable inputs to extrapolate an estimated fair value.
We consider transactions in inactive or disorderly markets to be less representative of fair value. We use all available observable
inputs when measuring fair value, but when significant other unobservable inputs and adjustments are necessary, we classify these assets
or liabilities as Level 3.