Unum 2009 Annual Report Download - page 67

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Unum 2009 Annual Report
The duration weighted book yield on the fixed income securities in our investment portfolio was 6.74 percent as of December 31,
2009, and the weighted average credit rating was A3. This compares to a yield of 6.72 percent as of December 31, 2008 and a weighted
average credit rating of A2. At December 31, 2009, the weighted average duration of our policyholder liability portfolio was approximately
8.23 years, and the weighted average duration of our investment portfolio supporting those policyholder liabilities was approximately
7.08 years. The difference between the asset and liability durations is outside our investment policy guidelines. We are currently reviewing
our investment strategy as well as our tolerance levels.
Realized investment gains and losses, before tax, are as follows:
Year Ended December 31
(in millions of dollars) 2009 2008 2007
Fixed Maturity Securities
Gross Gains on Sales $ 48.6 $ 64.9 $ 56.0
Gross Losses on Sales (83.5) (80.8) (29.1)
Other-Than-Temporary Impairment Loss (211.8) (151.1) (53.7)
Mortgage Loans and Other Invested Assets
Gross Gains on Sales 11.5 13.5 49.8
Gross Losses on Sales (0.4) (3.8) (8.3)
Impairment Loss (8.1) (15.0) (22.5)
Embedded Derivative in Modified Coinsurance Arrangement 243.1 (291.7) (57.3)
Other Derivatives 12.3 (1.9) (0.1)
Net Realized Investment Gain (Loss) $ 11.7 $(465.9) $(65.2)
Realized Investment Losses $10.0 Million or Greater from Other-Than-Temporary Impairments
• During 2009, we recognized an other-than-temporary impairment loss of $33.3 million on securities issued by a U.S. media
conglomerate. The company reported mixed fourth quarter 2008 operating results as its outdoor advertising weakened
significantly. During the first quarter of 2009, the company borrowed $1.6 billion against its lines of credit and completed a
tender/exchange offer to improve its near term debt maturity profile. Continued signs that the company’s operations weakened
materially in the first quarter 2009, as well as the continued weakness in the economy at that time, led us to believe that
covenant violations could occur in the near future. At the time of the impairment loss, these securities had been in an unrealized
loss position for a period of greater than three years.
• During 2009, we recognized an other-than-temporary impairment loss of $32.9 million on securities issued by a U.K. nancial
institution. The decline in value of the securities is primarily the result of the global credit crisis and the slowdown in the
economy. In addition, this financial institution made a major acquisition during the peak of the past credit cycle. The financial
institution then had to recognize impairments on loans and other assets held by the acquired company, resulting in the need
for additional capital. This capital was initially provided by shareholders and others, but as the economic environment further
deteriorated, the financial institution participated in the government guarantee of senior debt, capital injections, and an asset
protection scheme. At the time of the impairment loss, these securities had been in an unrealized loss position for a period of
greater than three years.
• During 2009, we recognized an other-than-temporary impairment loss of $23.9 million on securities issued by a U.S. automotive
parts company. Due to the weak economy, automobile production had decreased dramatically, with the expectation of further
production reductions at the time of the impairment loss. Declining earnings caused the company to be out of compliance
with covenants in certain of its debt issues. The company eventually obtained waivers on these covenants, the terms of which
precluded the company from making interest payments on certain of its other debt issues. The company was unable to cure
this default within the grace period and ultimately was forced to file for bankruptcy. At the time of the impairment loss, these
securities had been in an unrealized loss position for a period of greater than three years.