Unum 2008 Annual Report Download - page 73

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69

Investment Results
Net investment income was $2,389.0 million in 2008, a decrease of 0.9 percent relative to the prior year. The level of invested assets
was higher in 2008 compared to 2007, but we received fewer bond call premiums during 2008. The weaker British pound in 2008 relative
to 2007 also unfavorably affected translated results for net investment income. Our portfolio yield has increased slightly year over year due
to the investment of new cash at higher rates than that of prior periods, particularly during the last two quarters of 2008.
Net investment income was $2,409.9 million in 2007, an increase of 3.8 percent relative to the prior year. The increase was due primarily
to growth in invested assets, partially offset by a lower yield due to the investment of new cash at lower rates than that of our existing portfolio
yield and a decline in the level of prepayment income on mortgage-backed securities. The pound strengthened during 2007 relative to 2006,
which favorably affected translated results for net investment income.
The duration weighted book yield on the fixed income securities in our investment portfolio was 6.72 percent as of December 31, 2008,
and the weighted average credit rating was A2. This compares to a yield of 6.66 percent as of December 31, 2007 and a weighted average
credit rating of A2. At December 31, 2008, the weighted average duration of our policyholder liability portfolio was approximately 7.17 years,
and the weighted average duration of our investment portfolio supporting those policyholder liabilities was approximately 6.51 years.
Realized investment gains and losses, before tax, are as follows:
Year Ended December 31
(in millions of dollars)  2007 2006
   $105.8 $82.0

Write-downs  76.2 17.2
Sales  37.5 57.3
  113.7 74.5
  (57.3) (5.3)
  $ (65.2) $2.2
Realized Investment Losses $10.0 Million or Greater from Other than Temporary Impairments
• During 2008, we recognized an other than temporary impairment loss of $39.3 million on a principal protected equity linked note
issued by a Fortune 500 financial services company, the return of which is linked to a Vanguard S&P 500 index mutual fund. This note
had an embedded derivative contract and substituted highly rated bonds in place of the underlying S&P 500 index mutual fund to
provide principal protection if there was a significant decline in the equities market. The note derived its value from the underlying
S&P 500 index mutual fund. At the time of the other than temporary impairment loss recognition, the decline in the S&P 500 index
had not been significant enough to trigger the substitution of the bonds, but due to the recent steep decline in the S&P 500 index,
we could no longer conclude that the value of the underlying S&P 500 index mutual fund would equate to or exceed the par value
of the security at maturity. At the time of the impairment loss, these securities had been 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 2008, we recognized an other than temporary impairment loss of $32.0 million on securities issued by a U.S. based automobile
manufacturer and its captive finance subsidiary. The company has experienced a decline in profitability and cash flow due to the weak
economic environment. Although the company has not yet received government bailout money, the probability of receiving some
form of government financial aid has significantly increased. Other U.S. automakers that have received bailout money are expected
to request their bondholders to accept a significant reduction in principal. In order for this company to stay competitive with other
U.S. automakers, it is likely that it, too, will seek debt relief from its bondholders and that we will not recover our entire principal for
these securities. At the time of the impairment loss, these securities had been in an unrealized loss position for a period of greater
than three years.