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Unum 2007 Annual Report 37
Valuation of Fixed Maturity Securities
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:
 •Theprobabilityofrecoveringprincipalandinterest.
 •Ourabilityandintenttoretainthesecurityforasufcientperiodoftimeforittorecover.
 •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actions.
 •Bidandofferingpricesandtheleveloftradingactivity.
 •Adversechangesinestimatedcashowsforsecuritizedinvestments.
 •Anyotherkeymeasuresfortherelatedsecurity.
Our review procedures include, but are not limited to, monthly meetings of certain members of our senior management personnel
to review reports on the entire portfolio, identifying investments with changes in market value of five percent or more, investments with
changes in rating either by external rating agencies or internal analysts, investments segmented by issuer, industry, and foreign exposure
levels, and any other relevant investment information to help identify our exposure to possible credit losses.
Based on this review of the entire investment portfolio, individual investments may be added to or removed from our “watch list,”
which is a list of securities subject to enhanced monitoring and a more intensive review. We also determine if our investment portfolio is
overexposed to an issuer that is showing warning signs of deterioration and, if so, we make no further purchases of that issuer’s securities
and may seek opportunities to sell securities we hold from that issuer to reduce our exposure. We monitor below-investment-grade
securities as to individual exposures and in comparison to the entire portfolio as an additional credit risk management strategy, looking
specifically at our exposure to individual securities currently classified as below-investment-grade. In determining current and future
business prospects and cash availability, we consider the parental support of an issuer in its analysis but do not rely heavily on this support.
If we determine that the decline in value of an investment is other than temporary, the investment is written down to fair value,
and an impairment loss is recognized in the current period to the extent of the decline in value. If the decline is considered temporary,
the security continues to be carefully monitored. These controls have been established to identify our exposure to possible credit losses
and are intended to give us the ability to respond rapidly.
We have no held-to-maturity fixed maturity securities. All fixed maturity securities are classified as available-for-sale and are reported
at fair value. Fair values are based on quoted market prices, where available.
Private placement fixed maturity securities had a fair value of approximately $3.9 billion, or 10.9 percent of total fixed maturity
securities, at December 31, 2007. Private placement fixed maturity securities do not have readily determinable market prices. For these
securities, we use internally prepared valuations combining matrix pricing with vendor purchased software programs, including valuations
based on estimates of future profitability, to estimate the fair value. Additionally, we obtain prices from independent third-party brokers
to establish valuations for certain of these securities. Our ability to liquidate our positions in some of these securities could be impacted to
a significant degree by the lack of an actively traded market, and we may not be able to dispose of these investments in a timely manner.
Although we believe our estimates reasonably reflect the fair value of those securities, the key assumptions about the risk-free interest
rates, risk premiums, performance of underlying collateral (if any), and other factors involve significant assumptions and may not reflect
those of an active market. We believe that generally these private placement securities carry an average credit quality comparable to
companies rated Baa or BBB by major credit rating organizations.