Unum 2006 Annual Report Download - page 97

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During 2005, we recognized an other than temporary impairment loss of $10.3 million on certificates issued by
a trust backed by leases to a U.S. based airline. Although the airline had filed for bankruptcy in the third quarter of
2004, the bonds were secured by aircraft owned by the trust and had remained current on all interest payments to
date. However, due to the lack of clarity regarding the value of aircraft collateralizing these securities and the length
of time these securities have been in an unrealized loss position, we determined that an other than temporary
impairment had occurred. These securities were investment-grade at the time of purchase but were downgraded to
below-investment-grade in the first quarter of 2000. At the time of the impairment, these securities had been
continuously in an unrealized loss position for a period of greater than three years. The circumstances of this
impaired investment have no impact on other investments.
During 2004, we recognized an other than temporary impairment loss of $20.5 million on securities issued by a
large domestic based airline. The company continued to be plagued by a high cost structure and faced liquidity
problems if costs were not substantially reduced in the short-term. The securities were investment-grade at the time
of purchase but were downgraded to below-investment-grade in the third quarter of 2001. At the time of the
impairment loss, these securities had been continuously in an unrealized loss position for a period of greater than
three years. The circumstances of this impaired investment have no impact on other investments.
Also during 2004, we recognized an other than temporary impairment loss of $12.0 million on senior notes issued
by a United Kingdom based engineering and manufacturing company engaged in the bus and automotive industry.
The company experienced a rapid deterioration in business prospects at its main operating unit in late 2003 and early
2004, followed by the discovery of bookkeeping fraud at one of its business units. Both of these issues were
discovered and disclosed to the company’s banks and note holders by outside financial consultants during the first
quarter of 2004. The company filed for U.K. administration on March 31, 2004. The securities were investment-
grade at the time of purchase but were downgraded to below-investment-grade in the third quarter of 2003. At the
time of the impairment loss, these securities had been continuously in an unrealized loss position for a period of
greater than 180 days but less than 270 days. The circumstances of this impaired investment have no impact on
other investments.
Realized Investment Losses $10.0 Million or Greater from Sale of Fixed Maturity Securities
During 2006, we recognized a loss of $13.1 million on the sale of securities issued by a U.S. based automotive parts
supplier. This company had experienced lower sales due to declining auto production and higher expenses due to
increasing steel prices. In an October 2005 press release, this company confirmed that due to accounting errors it
would restate its previously released 2004 and first and second quarter 2005 earnings and delay third and fourth
quarter 2005 earnings releases. In a first quarter of 2006 press release, the company reported third quarter 2005
results which were significantly below expectations and also withdrew guidance of positive free cash flow for
its fiscal year 2005. Trade creditors put into place more stringent credit terms in response to the weaker financial
results, which forced the company into bankruptcy in the first quarter of 2006. A portion of these securities had an
investment-grade rating at the time of purchase, and a portion was purchased after the securities had been
downgraded to below-investment-grade in the second quarter of 2001. At the time of sale, these securities had been
continuously in an unrealized loss position for a period of greater than three years. The circumstances of this
investment have no impact on other investments.
During 2005, we recognized a loss of $14.6 million on the sale of securities issued by a major U.S. based
automotive parts supplier. The company had experienced declining sales and production levels, along with higher
steel prices and growing employee health care and retirement costs. The company filed for bankruptcy in the third
quarter of 2005. These securities were investment-grade at the time of purchase but were downgraded to below-
investment-grade in the first quarter of 2005. At the time of sale, these securities had been continuously in an
unrealized loss position for a period of greater than 90 days but less than 180 days. The circumstances of this
investment have no impact on other investments.