Unum 2009 Annual Report Download - page 113

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111
Unum 2009 Annual Report
In determining when a decline in fair value below amortized cost of a fixed maturity security is other than temporary, we evaluate
the following factors:
• Whether we expect to recover the entire amortized cost basis of the security.
• Whether we intend to sell the security or will be required to sell the security before the recovery of its amortized cost basis.
• Whether the security is current as to principal and interest payments.
• The signicance of the decline in value.
• The time period during which there has been a signicant decline in value.
• Current and future business prospects and trends of earnings.
• The valuation of the security’s underlying collateral.
• Relevant industry conditions and trends relative to their historical cycles.
• Market conditions.
• Rating agency and governmental actions.
• Bid and offering prices and the level of trading activity.
• Adverse changes in estimated cash ows for securitized investments.
• Changes in fair value subsequent to the balance sheet date.
• Any other key measures for the related security.
We evaluate available information, including the factors noted above, both positive and negative, in reaching our conclusions. In
particular, we also consider the strength of the issuer’s balance sheet, its debt obligations and near term funding requirements, cash flow
and liquidity, the profitability of its core businesses, the availability of marketable assets which could be sold to increase liquidity, its
industry fundamentals and regulatory environment, and its access to capital markets. Although all available and applicable factors are
considered in our analysis, our expectation of recovering the entire amortized cost basis of the security, whether we intend to sell the
security, whether it is more likely than not we will be required to sell the security before recovery of its amortized cost, and whether
the security is current on principal and interest payments are the most critical factors in determining whether impairments are other
than temporary. The significance of the decline in value and the length of time during which there has been a significant decline are also
important factors, but we generally do not record an impairment loss based solely on these two factors, since often other more relevant
factors will impact our evaluation of a security.
While determining other-than-temporary impairments is a judgmental area, we utilize a formal, well-defined, and disciplined process
to monitor and evaluate our fixed income investment portfolio, supported by issuer specific research and documentation as of the end of
each period. The process results in a thorough evaluation of problem investments and the recording of losses on a timely basis for investments
determined to have an other-than-temporary impairment.
If we determine that the decline in value of an investment is other than temporary, the investment is written down to fair value, and
an impairment loss is recognized in the current period, either in earnings or in both earnings and other comprehensive income, as applicable.
For those fixed maturity securities with an unrealized loss for which we have not recognized an other-than-temporary impairment, we
believe we will recover the entire amortized cost, we do not intend to sell the security, and we do not believe it is more likely than not we
will be required to sell the security before recovery of its amortized cost. There have been no defaults in the repayment obligations of any
securities for which we have not recorded an other-than-temporary impairment.
Other-than-temporary impairment losses on fixed maturity securities which we intend to sell or more likely than not will be required
to sell before recovery in value are recognized in earnings and equal the entire difference between the security’s amortized cost basis and
its fair value. For securities which we do not intend to sell and it is not more likely than not that we will be required to sell before recovery
in value, other-than-temporary impairment losses recognized in earnings generally represent the difference between the amortized cost of
the security and the present value of our best estimate of cash flows expected to be collected, discounted using the effective interest rate
implicit in the security at the date of acquisition. The determination of cash flows is inherently subjective, and methodologies may vary
depending on the circumstances specific to the security. The timing and amount of our cash flow estimates are developed using historical
and forecast financial information from the issuer, including its current and projected liquidity position. We also consider industry analyst