Unum 2008 Annual Report Download - page 74

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• During 2008, we recognized an other than temporary impairment loss of $27.8 million on securities issued by a large investment
banking firm. The company experienced a rapid deterioration in its credit and derivatives portfolio, which made it impossible for
the firm to raise additional capital or to sell assets to increase liquidity. The inability to raise capital forced the company to file for
bankruptcy protection in the third quarter of 2008. The firm was rated A2 by Moody’s and A by S&P at the time of the bankruptcy
filing. At the time of the impairment loss, these securities had been in an unrealized loss position for a period of greater than two
years but less than three years.
• During 2008, we recognized an other than temporary impairment loss of $21.6 million on securities issued by a large publisher of
yellow page advertising. The outlook for this industry continues to worsen due to the secular change impacting the industry and due
to weak economic conditions. The company’s third quarter earnings were down significantly as compared to prior periods, and bad
debt expense and financial leverage increased significantly. These financial results increased the likelihood that the company
might violate bank covenants and seek waivers from its bondholders. Additionally, the company hired external consultants to advise
it on potential capital restructuring alternatives. These events increase the likelihood that the company will seek to tender its bonds
at a discounted value and that our bonds will not fully recover in value. At the time of the impairment loss, these securities had been
in an unrealized loss position for a period of greater than one year but less than two years.
• During 2008, we recognized an other than temporary impairment loss of $12.9 million on securities issued by a large international
chemical company. The company’s third quarter operating results were weak due to recessionary industry conditions and the negative
impact of hurricane activity on its oil refinery operations. Due to these factors, the company experienced a significant decline in its
liquidity. In late December, lenders denied the company’s request to obtain additional funding from its existing line of credit. As a
result, the company’s liquidity was insufficient to fund required cash outflows, and the company hired external consultants to advise
it on potential capital restructuring alternatives. We recorded an impairment loss in the fourth quarter of 2008 and subsequently sold
the securities in early 2009. At the time of the impairment loss, these securities had been in an unrealized loss position for a period
of greater than one year but less than two years.
• During 2008, we recognized an other than temporary impairment loss of $12.1 million on securities issued by a large newspaper
publishing company. The outlook for this industry continues to deteriorate due to the secular change away from newspaper advertising
and weak economic conditions. The company reported poor third quarter operating results. The increase in leverage and lower cash flows
increase the likelihood that the company may violate its bank covenants. The company has attempted to sell non-core assets to reduce
its debt, but it has been unable to execute a sale. As a result, it is likely that our bonds will not fully recover in value. At the time of the
impairment loss, these securities had been in an unrealized loss position for a period of greater than two years but less than three years.
• During 2007, we recognized an other than temporary impairment loss of $15.0 million on bonds issued by a large media company.
The company was the subject of a leveraged buyout that placed a large amount of debt on the balance sheet during 2007. Because of
our outlook for the future business prospects of this issuer, the length of time these securities had been in an unrealized loss position,
and a change in our intent to retain the security for a sufficient period of time for it to recover, we determined that an other than
temporary impairment had occurred. These securities were investment grade at the time of purchase but were downgraded to
below-investment-grade in the second quarter of 2006. At the time of the impairment, these securities had been in an unrealized loss
position for a period of greater than two years. The circumstances of this impaired investment have no impact on other investments.
• During 2007, we recognized losses of $18.4 million related to the decline in fair value below amortized cost for certain securities for which
it was determined during the third quarter of 2007 that we no longer had the intent to hold to recovery or maturity due to anticipated
changes in our capital requirements resulting from the reinsurance transactions involving our Individual Disability — Closed Block
segment business and the related issuance of $800.0 million of notes, as well as our capital redeployment plans.
• During 2007, we recorded an adjustment to the book values and related unrealized loss of two securitized asset trusts acquired in
2001 to reflect the values that would have been present had we recorded the investment income as dividends rather than interest
accretion. The book value adjustment of $20.2 million was recognized as a realized investment loss in the second quarter of 2007.
Because the investments no longer satisfied our investment objectives, we subsequently sold the trusts in June of 2007 and
recognized a realized investment gain of $24.9 million on the sale.
• We had no individual realized investment losses $10.0 million or greater from other than temporary impairments during 2006.