Unum 2014 Annual Report Download - page 36

34 UNUM • 2014 ANNUAL REPORT
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Investment Impairments
One of the significant estimates related to investments is our impairment valuation. 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.
We use a comprehensive rating system to evaluate the investment and credit risk of our mortgage loans and to identify specific
properties for inspection and reevaluation. Mortgage loans are considered impaired when, based on current information and events,
it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. We establish an
allowance for probable losses on mortgage loans based on a review of individual loans, considering the value of the underlying collateral,
the value of which is periodically assessed. Mortgage loans are not reported at fair value in our consolidated balance sheets unless the
mortgage loan is considered impaired, in which case the impairment is recognized as a realized investment loss in our consolidated
statements of income.