Unum 2009 Annual Report Download - page 66

64
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Unum
2009
• The maximum investment per issuer group is limited based on internal limits reviewed by the nance committee of Unum Group’s board
of directors and approved by the boards of directors of our insurance subsidiaries and is more restrictive than the five percent limit generally
allowed by the state insurance departments which regulate the type of investments our insurance subsidiaries are allowed to own.
These internal limits are as follows:
Rating Internal Limit
($ in millions)
AAA/A $200
BBB+ 175
BBB 100
BBB- 80
BB+ 80
BB 60
BB- 50
B 20
• The portfolio is to be diversied across industry classication and geographic lines.
• Derivative instruments may be used to replicate permitted asset classes, hedge interest rate risk and foreign currency risk, and match
liability duration and cash flows consistent with the plan reviewed by the finance committee of Unum Group’s board of directors and
approved by the boards of directors of our insurance subsidiaries.
• Asset mix guidelines and limits are established by us, reviewed by the nance committee of Unum Group’s board of directors, and
approved by the boards of directors of our insurance subsidiaries.
• The allocation of assets and the selection and timing of the acquisition and disposition of investments are subject to ratication,
on a weekly basis, by an investment subcommittee appointed by the boards of directors of our insurance subsidiaries. These actions
are also reviewed by the finance committee of Unum Group’s board of directors on a quarterly basis.
• We review these investment policies and guidelines annually, or more frequently if deemed necessary, and recommend adjustments,
as appropriate. Any revisions are reviewed by the finance committee of Unum Group’s board of directors and must be approved by
the boards of directors of our insurance subsidiaries.
See “Critical Accounting Estimates” contained herein for further discussion of our valuation of investments.
Investment Results
Net investment income was $2,346.6 million in 2009, a decrease of 1.8 percent relative to 2008. The weaker pound in 2009 relative to 2008
unfavorably affected translated results for net investment income. During 2009, we also received lower investment income on bonds in Unum
UK for which interest income is linked to a U.K. inflation index, as compared to the prior year. This decrease in net investment income was largely
offset by lower claim reserves due to lower claim payments which are also linked to inflation. In addition, we earned lower interest rates on our
floating rate invested assets during 2009, largely offset by lower interest expense on our floating rate debt. We also received fewer bond call
premiums and consent fees during 2009 compared to the prior year. Somewhat mitigating the impact of these items is continued growth in the
level of invested assets, an increase in the level of prepayment income on mortgage-backed securities, and an increase in our portfolio yield due
to the investment of new cash at higher rates than that of the prior year.
Net investment income was $2,389.0 million in 2008, a decrease of 0.9 percent relative to 2007. The level of invested assets was higher
in 2008 compared to 2007, but we received fewer bond call premiums during 2008. The weaker British pound in 2008 relative to 2007 also
unfavorably affected translated results for net investment income. Our portfolio yield increased slightly in 2008 over 2007 due to the investment
of new cash at higher rates than that of prior periods.