Unum 2006 Annual Report Download - page 96

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Investment Results
Net investment income was $2,320.6 million in 2006, an increase of 6.0 percent relative to the prior year. The
increase was due primarily to growth in invested assets and an increase in bond call premiums, offset by a lower
yield due to the investment of new cash at lower rates than that of our overall portfolio yield and a decline in the
level of prepayment income on mortgage-backed securities. Net investment income is also higher in 2006 compared
to last year because of the investment income related to the bonds transferred to one of our insurance subsidiaries in
conjunction with the 2005 recapture of a ceded closed block of individual income protection business.
The overall yield in our investment portfolio was 6.73 percent as of December 31, 2006, and the weighted average
credit rating was A2. This compares to an overall yield in the portfolio of 6.85 percent as of December 31, 2005 and
a weighted average credit rating of A2. We expect the portfolio yield to continue to gradually decline until the
market rates on new purchases equal or exceed the level of the overall yield.
We recognize impairment losses when we determine that the value of certain fixed maturity securities has other than
temporarily declined during the applicable reporting period, as well as when there are further declines in the values
of fixed maturity securities that were initially written down in a prior period. See “Critical Accounting Estimates”
contained herein in Item 7 for a complete discussion of the valuation of fixed maturity securities.
We also report changes in the fair values of certain embedded derivatives as realized investment gains and losses, as
required under the provisions of Statement of Financial Accounting Standards No. 133 Implementation Issue B36
(DIG Issue B36), Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That
Incorporate Credit Risk Exposure That Are Unrelated or Only Partially Related to the Creditworthiness of the
Obligor Under Those Instruments. Fair value changes in 2005 include an embedded derivative that was terminated
when the associated reinsurance contract was recaptured in 2005. Under our remaining reinsurance contracts for
which DIG Issue B36 is applicable, we believe that fair value changes will be minimal.
Realized investment gains and losses, before tax, are as follows:
(in millions of dollars)
2006 2005 2004
Gross Realized Investment Gain from Sales 82.0$ 110.8$ 93.4$
Gross Realized Investment Loss
Write-downs 17.2 19.4 88.0
Sales 57.3 90.2 64.8
Total 74.5 109.6 152.8
Change in Fair Value of DIG Issue B36 Derivatives (5.3) (7.9) 88.6
Net Realized Investment Gain (Loss) 2.2$ (6.7)$ 29.2$
Year Ended December 31
Realized Investment Losses $10.0 Million or Greater from Other than Temporary Impairments
We had no individual realized investment losses $10.0 million or greater from other than temporary impairments
during 2006. During 2005 and 2004, we recognized other than temporary impairment losses of $10.0 million or
greater on securities from three different issuers. Discussed as follows are the circumstances surrounding those
impairment losses.