Unum 2008 Annual Report Download - page 75

Download and view the complete annual report

Please find page 75 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

71

Realized Investment Losses $10.0 Million or Greater from Sale of Fixed Maturity Securities
• During 2008, we recognized a loss of $16.2 million on the sale of securities issued by the large investment bankingrm discussed above.
• During 2008, we recognized a loss of $10.1 million on the disposition of the principal protected equity linked note discussed above.
The note’s substitution clause was triggered in the fourth quarter of 2008 due to the continued decline in the S&P 500 index. At the
time of the triggering event, we made the decision to take ownership in the underlying Vanguard S&P 500 index mutual fund
shares rather than accept the zero coupon bonds issued by the financial services company. At the time of disposition, this note had
been continuously in an unrealized loss position for a period of less than ninety days. The circumstances of this investment have no
impact on other investments.
• We had no individual realized investments losses $10.0 million or greater from the sale of xed maturity securities during 2007.
• During 2006, we recognized a loss of $13.1 million on the sale of securities issued by a U.S. based automotive parts supplier. In the
first quarter of 2006, the company reported third quarter 2005 results which were significantly below expectations and also withdrew
guidance of positive free cash flow for its fiscal year 2005. Trade creditors put into place more stringent credit terms in response to the
weaker financial results, which forced the company into bankruptcy in the first quarter of 2006. A portion of these securities had an
investment-grade rating at the time of purchase, and a portion was purchased after the securities had been downgraded to below-
investment-grade in the second quarter of 2001. At the time of sale, these securities had been continuously in an unrealized loss
position for a period of greater than three years. The circumstances of this investment have no impact on other investments.
Change in Fair Value of DIG Issue B36 Derivative
We report changes in the fair value of an embedded derivative in a modified coinsurance arrangement as realized investment gains and
losses, as required under the provisions of DIG Issue B36. Losses in both 2008 and 2007 resulted primarily from a widening of credit spreads in
the overall investment market, as previously discussed.
DIG Issue B36 requires us to include in our realized investment gains and losses a calculation intended to estimate the value of the
option of our reinsurance counterparty to cancel the reinsurance contract with us. However, neither party can unilaterally terminate the
reinsurance agreement except in extreme circumstances resulting from regulatory supervision, delinquency proceedings, or other direct
regulatory action. Cash settlements or collateral related to this embedded derivative are not required at any time during the reinsurance
contract or at termination of the reinsurance contract, and any accumulated embedded derivative gain or loss reduces to zero over time
as the reinsured business winds down. We therefore view DIG Issue B36 as a reporting requirement that will not result in a permanent
reduction of assets or stockholders’ equity. The fair value of this embedded derivative was $(360.5) million and $(68.8) million at
December 31, 2008 and 2007, respectively, and is reported in other liabilities in our consolidated balance sheets.
Fair Value Measurements
Effective January 1, 2008, we adopted the provisions of Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair Value
Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value
measurements. SFAS 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. It
does not require any new fair value measurements. SFAS 157 clarifies a number of considerations with respect to fair value measurement
objectives for financial reporting and expands disclosure about the use of fair value measurements, with particular emphasis on the inputs
used to measure fair value. The adoption of SFAS 157 did not materially change the approach or methods we utilize for determining fair value
measurements or the fair values derived under those methods. See “Critical Accounting Estimates” contained herein and Notes 3 and 4 of the
“Notes to Consolidated Financial Statements” for further discussion of our fair value measurements.