Unum 2008 Annual Report Download - page 72

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securities, absent the guaranty insurance policy, is A1. We held $302.7 million fair value ($496.1 million amortized cost) of perpetual debentures,
or “hybrid” securities, that generally have no fixed maturity date. Interest on these securities due on any payment date may be deferred by
the issuer. The interest payments are generally deferrable only to the extent that the issuer has suspended dividends or other distributions or
payments to any of its shareholders or any other perpetual debt instrument.
Below is a summary of our formal investment policy, including the overall quality and diversification objectives.
• The majority of investments are in high quality publicly traded securities to ensure the desired liquidity and preserve the capital value
of our portfolios.
• The long-term nature of our insurance liabilities also allows us to invest in less liquid investments to obtain superior returns. A maximum
of 10 percent of the total investment portfolio may be invested in below-investment-grade securities, 2 percent in equity type
instruments, up to 35 percent in private placements, and 5 percent in commercial mortgage loans. The remaining assets can be held in
publicly traded investment-grade corporate securities, mortgage-backed securities, bank loans, asset-backed securities, government
and government agencies, and municipal securities.
• We intend to manage the risk of losses due to changes in interest rates by matching asset duration with liabilities, in the aggregate,
to within a range of +/- ten percent of the liability duration.
• The weighted average credit quality rating of the portfolio should be BBB or higher.
• The maximum investment per issuer group is limited based on internal limits reviewed by the nance committee of Unum Group’s
board of directors and approved by the boards of directors of our insurance subsidiaries and is more restrictive than the five percent
limit generally allowed by the state insurance departments which regulate the type of investments our insurance subsidiaries are
allowed to own. These internal limits are as follows:
Rating Internal Limit
($ in millions)
AAA/A $150
BBB+ 125
BBB 100
BBB- 75
BB+ 60
BB/BB- 50
B 20
• The portfolio is to be diversied across industry classication and geographic lines.
• Derivative instruments may be used to hedge interest rate risk and foreign currency risk and match liability duration and cash ows
consistent with the plan reviewed by the finance committee of Unum Group’s board of directors and approved by the boards of
directors of our insurance subsidiaries.
• Asset mix guidelines and limits are established by us, reviewed by the nance committee of Unum Group’s board of directors,
and approved by the boards of directors of our insurance subsidiaries.
• The allocation of assets and the selection and timing of the acquisition and disposition of investments are subject to ratication, on
a weekly basis, by an investment subcommittee appointed by the boards of directors of our insurance subsidiaries. These actions
are also reviewed by the finance committee of Unum Group’s board of directors on a quarterly basis.
• We review these investment policies and guidelines annually, or more frequently if deemed necessary, and recommend adjustments,
as appropriate. Any revisions are reviewed by the finance committee of Unum Group’s board of directors and must be approved by
the boards of directors of our insurance subsidiaries.
See “Critical Accounting Estimates” contained herein for further discussion of our valuation of investments.