Unum 2007 Annual Report Download - page 75

Unum 2007 Annual Report 73
relevant facts and circumstances, or the securities become other than temporarily impaired. Generally, below-investment-grade fixed
maturity securities are more likely to develop credit concerns. In determining whether a decline in fair value below amortized cost of a
fixed maturity security is other than temporary, we utilize a formal, well-defined, and disciplined process to monitor and evaluate our
fixed income investment portfolio. The process results in a thorough evaluation of problem investments and the recording of realized
losses on a timely basis for investments determined to have an other than temporary impairment.
For those fixed maturity securities with an unrealized loss and on which we have not recorded an impairment loss, we believe that
the decline in fair value below amortized cost is temporary. We have the ability and intent to hold our securities to the earlier of recovery
or maturity. If information becomes available that changes our assessment as to whether we will receive contractual payments related to
a fixed maturity security and the security is also not projected to recover in value, the related security is generally sold. We may also in
certain circumstances sell a security in an unrealized loss position because of changes in tax laws, when a merger or the disposition of a
segment or product line results in positions outside of our investment guidelines, due to changes in regulatory or capital requirements,
due to unexpected changes in liquidity needs, to better match portfolio cash flows, or to take advantage of relative value opportunities
or tender offers that recover up to or beyond the cost of the investment.
For those securities with a gross unrealized loss of $10.0 million or greater, further discussed as follows are (a) the factors which we
believe resulted in the impairment and (b) the information we considered, both positive and negative, in reaching the conclusion that the
impairments were not other than temporary.
 •ThexedmaturitybondoftheU.S.governmentsponsoredmortgagefundingcompanywasissuedbytheFederalHomeLoan
Mortgage Corporation. The bond was rated AAA by S&P as of December 31, 2007, with no negative outlook by rating agencies or in
analysts’ reports. The change in the market value of this security relates to changes in interest rates after the purchase of the bond.
We believe that the decline in fair value of this security is temporary. The market value of this security will increase if interest rates
decline to levels similar to when the bonds were purchased. We believe this is likely to occur over the life of the security. We have
the ability to hold this security to the earlier of recovery or maturity.
 •Theprincipalprotectedequitylinkednoteisazerocouponbond,issuedbyalarge,wellcapitalizedFortune500nancialservices
company, the return of which is linked to a Vanguard S&P 500 index mutual fund. This bond matures on August 24, 2020 and carried
the AA rating of the issuer, as determined by S&P as of December 31, 2007. This note has an embedded derivative contract and
substitutes highly rated bonds in place of the underlying S&P 500 index mutual fund to provide principal protection if there is a
significant decline in the equities market. The note derives its value from the underlying S&P 500 index mutual fund. This note is
currently at an unrealized loss because the fixed rate of accretion on the note has exceeded the rate of return on the underlying
S&P 500 index fund since the purchase date of the note. Based on historical long-term returns of the S&P 500 index, we believe that
the value of the underlying S&P 500 index mutual fund will equate to or exceed the par value of the security at maturity. We believe
that the decline in fair value of the note is temporary. We have the ability to hold this security to the earlier of recovery or maturity.
 •ThefairvalueofthesecuritiesoftheUnitedKingdombasednancialinstitutiondeclinedduetoasignicantdecreaseinitsliquidity,
although The Bank of England has guaranteed the institution’s deposits and senior debt securities. In addition, at the time of the
decrease in liquidity, the regulatory authority of the U.K. financial services industry stated that the financial institution exceeded
regulatory requirements and had a good quality loan book. Two private-sector bidders have presented offers to purchase the
institution at prices that give equity value to the company. We believe that the decline in fair value of these securities is temporary.
We have the ability to hold these securities to the earlier of recovery or maturity.
 •ThexedmaturitybondsoftheU.S.basedautomobilemanufactureraresecuritiesissuedbythemanufactureranditscaptive
finance subsidiary. The reduction in market value of these securities is due primarily to a decline in profitability and cash flow due
to the competitive environment, a loss of market share, the shift in consumer demand, and an increase in the cost of raw materials
and employee healthcare and pension benefits. The company and its finance subsidiary both have substantial liquidity, and the
company has non-core automotive brands available for sale. Given this available liquidity, we believe that the decline in fair value
of these securities is temporary. We have the ability to hold these securities to the earlier of recovery or maturity.