Unum 2013 Annual Report Download - page 78

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
76 / UNUM 2013 ANNUAL REPORT
Off-Balance Sheet Arrangements
Operating leases include noncancelable obligations on certain office space, equipment, and software. Purchase obligations include
non-binding commitments of $58.0 million to fund certain of our investments in private placement securities, $158.4 million to fund certain
private equity partnerships, and $83.9 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, software maintenance agreements, and consulting services. The aggregate obligation
remaining under these agreements was $28.3 million at December 31, 2013.
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 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, including accrued interest
receivable less collateral held, was $5.5 million at December 31, 2013. We held $1.1 million cash collateral from our counterparties at
December 31, 2013. We posted fixed maturity securities with a carrying value of $95.6 million as collateral to our counterparties at
December 31, 2013.
See Notes 3 and 4 of the “Notes to Consolidated Financial Statements” contained herein for additional information.
Transfers of Financial Assets
Our investment policy permits us to lend fixed maturity securities to unaffiliated financial institutions in short-term securities
lending agreements, which increase our investment income with minimal risk. We account for all of our securities lending agreements and
repurchase agreements as collateralized financings. We had $76.5 million of securities lending agreements outstanding which were
collateralized by cash at December 31, 2013 and were reported as short-term debt in our consolidated balance sheets. The cash received as
collateral was reinvested in short-term investments. The average balance during the year ended December 31, 2013 was $159.0 million,
and the maximum amount outstanding at any month end was $292.3 million. In addition, at December 31, 2013, we had $132.9 million of
off-balance sheet securities lending agreements which were collateralized by securities that we were neither permitted to sell nor control.
The average balance of these off-balance sheet transactions during the year ended December 31, 2013 was $67.0 million, and the
maximum amount outstanding at any month end was $137.7 million.
We had no repurchase agreements outstanding at December 31, 2013. The average balance during the year ended December 31,
2013 was $0.7 million, and the maximum amount outstanding at any month end was $12.8 million. Our use of repurchase agreements and
securities lending agreements can fluctuate during any given period and will depend on our liquidity position, the availability of long-term
investments that meet our purchasing criteria, and our general business needs.
See Note 3 of the “Notes to Consolidated Financial Statements” contained herein for additional information.