Unum 2006 Annual Report Download - page 111

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Subsequent to our third quarter of 2006 revision to our claim reassessment reserve estimate, our ratings were
reevaluated by all four rating agencies, with each agency issuing a public comment in early November 2006. On
November 1, 2006, Fitch affirmed its ratings for our companies and maintained its outlook at “stable.” Also on
November 1, 2006, S&P affirmed its counterparty credit and financial strength ratings for our companies and
maintained its outlook. On November 2, 2006, Moody’s reaffirmed our credit ratings and financial strength ratings
for our companies but changed its outlook from “stable” to “negative,” citing our revision to our estimate of the
reassessment cost for the claims requiring remediation. On the positive side, Moody’s noted that our Company had
shown improvement in recent years in several of its key financial metrics, including lower financial leverage,
stronger cash flow interest coverage and earnings interest coverage ratios, and a stronger combined RBC ratio. On
November 7, 2006, AM Best reaffirmed our debt ratings and financial strength ratings and maintained the outlook
on the ratings at “negative.”
We cannot assure you that further changes by these or other rating agencies will or will not occur. Furthermore,
ratings are not directed toward the holders of our securities and are not recommendations to buy, sell, or hold our
securities. Each rating is subject to revision or withdrawal at any time by the assigning rating organization, and each
rating should be evaluated independently of any other rating.
See “Ratings” in Part 1, Item 1 and “Risk Factors – Debt and Financial Strength Ratings” in Part 1, Item 1A,
contained herein for further discussion.
Other Information
Pension and Postretirement Benefit Plans
We sponsor several defined benefit pension and postretirement plans for our employees, including non-qualified
pension plans. The U.S. pension plans comprise the majority of our total benefit obligation and pension expense.
The value of the benefit obligations is determined based on a set of economic and demographic assumptions that
represent our best estimate of future expected experience. These assumptions are reviewed annually. Two of the
economic assumptions, the discount rate and the long-term rate of return, are adjusted accordingly based on key
external indices. We follow Statements of Financial Accounting Standards No. 87 (SFAS 87), Employers’
Accounting for Pensions, No. 106 (SFAS 106), Employers’ Accounting for Postretirement Benefits Other Than
Pensions, No. 132 (SFAS 132), Employers’ Disclosures about Pensions and Other Postretirement Benefits, and No.
158 (SFAS 158), Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and 132(R) in our financial reporting and accounting for our
pension and postretirement benefit plans.
U.S. Pension and PostRetirement Benefit Plans
The assumptions chosen for U.S. pension plans and the U.S. postretirement plan use consistent methodology but
reflect the differences in the plan obligations. We use a December 31 measurement date for each plan.
The discount rate is an interest assumption used to convert the benefit payment stream to a present value. We set
the discount rate assumption at the measurement date for each of our retirement related benefit plans to reflect the
yield of a portfolio of high quality fixed income debt instruments matched against the timing and amounts of
projected future benefits. The discount rate used for the net periodic benefit costs for 2007 and 2006 for our U.S.
pension plans was 6.10 percent and 5.80 percent, respectively. Using a similar methodology applied to the
postretirement plan cash flows, the discount rate used in the net periodic benefit cost for 2007 and 2006 was 5.90
percent and 5.50 percent, respectively.
Lowering the discount rate by 50 basis points would have increased the 2006 pension expense for our U.S. pension
plans by $10.7 million and would be expected to result in an $11.2 million increase in our 2007 pension expense.
The long-term rate of return assumption is the best estimate of the average annual assumed return that will be
produced from the pension trust assets until current benefits are paid. We use a compound interest method in
computing the rate of return on pension plan assets. The long-term rate of return on assets used in the net periodic
pension costs for our U.S. qualified defined benefit pension plan for 2007 and 2006 was 8.00 percent. Lowering the
expected long-term rate of return on the plan assets by 50 basis points would have increased our 2006 pension