Unum 2008 Annual Report Download - page 71

Download and view the complete annual report

Please find page 71 of the 2008 Unum annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 158

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158

67

Individual Life and Corporate-Owned Life
During 2000, we reinsured substantially all of the individual life and corporate-owned life insurance blocks of business and ceded
approximately $3.3 billion of reserves to the reinsurer. The $388.2 million before-tax gain on these transactions was deferred and is being
amortized into income based upon expected future premium income on the traditional insurance policies ceded and estimated future gross
profits on the interest-sensitive insurance policies ceded. A portion of the ceded corporate-owned life insurance block of business surrendered
during 2007. The termination of this fully ceded business had no impact on our operating results and will not materially affect the amortization
of the deferred gain.
Total operating revenue for individual life and corporate-owned life insurance was $32.3 million, $29.4 million, and $37.8 million in 2008,
2007, and 2006, respectively. Operating income for the same periods was $26.2 million, $26.8 million, and $33.0 million.
Other
Group pension, health insurance, individual annuities, and other closed lines of business had combined operating revenue of $97.3 million
in 2008 and $103.6 million in both 2007 and 2006. These closed lines of business had combined operating losses of $1.9 million, $3.3 million,
and $1.9 million in 2008, 2007, and 2006, respectively.
Segment Outlook
Specific defaults within our investment portfolio are unforeseeable. We have tested whether our capital plan for 2009 has sufficient
cushion to absorb possible losses. Because we currently have a margin of excess holding company liquidity and statutory capital above our
capital management target guidelines, we believe we are well positioned for the economic downturn. It is possible, however, that defaults
in our investment portfolio will result in realized investment losses, reduced net investment income, and lower statutory capital. Depending on
the magnitude of defaults, we may need to seek additional external financing above the level anticipated in our current capital outlook.
As previously noted, we expect our 2009 pension costs to be approximately $42.5 million higher than the level of 2008. This
increase in expense will be charged to our Corporate and Other segment.

During the first quarter of 2007, we completed the sale of GENEX and recognized an after-tax gain on the transaction of approximately
$6.2 million. This gain is included with income from discontinued operations in our statements of income. Also included in discontinued
operations is after-tax income for GENEX of $0.7 million and $7.4 million in 2007 and 2006, respectively. See Note 2 of the “Notes to
Consolidated Financial Statements” for additional information.

Overview
We believe that our investment portfolio, which consists primarily of fixed income securities, is positioned to moderate the potential
impact of an economic slowdown on our financial position or operating results. Our portfolio is well diversified by type of investment and
industry sector. Over the past few years, we have actively reduced our exposure to below-investment-grade fixed maturity securities,
although additional downgrades may occur during an economic slowdown. We have established an investment strategy that we believe will
provide for adequate cash flows from operations and allow us to hold our securities through periods where significant decreases in fair value
occur. We have no exposure to subprime mortgages, “Alt-A” loans, or collateralized debt obligations in our asset-backed or mortgage-backed
securities portfolios. At December 31, 2008, we held $20.4 million fair value ($20.6 million amortized cost) of collateralized debt obligations
within our public bond portfolio. We had $148.3 million fair value ($170.2 million amortized cost) of exposure to investments for which the
payment of interest and principal is guaranteed under a financial guaranty insurance policy. The weighted average rating of the underlying