Unum 2010 Annual Report Download - page 33

Unum 2010 Annual Report
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We evaluate available information, including the factors noted above, both positive and negative, in reaching our conclusions. In
particular, we also consider the strength of the issuer’s balance sheet, its debt obligations and near term funding requirements, cash ow
and liquidity, the profitability of its core businesses, the availability of marketable assets which could be sold to increase liquidity, its
industry fundamentals and regulatory environment, and its access to capital markets. Although all available and applicable factors are
considered in our analysis, our expectation of recovering the entire amortized cost basis of the security, whether we intend to sell the
security, whether it is more likely than not we will be required to sell the security before recovery of its amortized cost, and whether the
security is current on principal and interest payments are the most critical factors in determining whether impairments are other than
temporary. The significance of the decline in value and the length of time during which there has been a significant decline are also
important factors, but we generally do not record an impairment loss based solely on these two factors, since often other more relevant
factors will impact our evaluation of a security.
While determining other-than-temporary impairments is a judgmental area, we utilize a formal, well-defined, and disciplined process
to monitor and evaluate our fixed income investment portfolio, supported by issuer specific research and documentation as of the end of
each period. The process results in a thorough evaluation of problem investments and the recording of losses on a timely basis for
investments determined to have an other-than-temporary impairment.
If we determine that the decline in value of an investment is other than temporary, the investment is written down to fair value, and
an impairment loss is recognized in the current period, either in earnings or in both earnings and other comprehensive income, as
applicable. For those fixed maturity securities with an unrealized loss for which we have not recognized an other-than-temporary
impairment, we believe we will recover the entire amortized cost, we do not intend to sell the security, and we do not believe it is more
likely than not we will be required to sell the security before recovery of its amortized cost. There have been no defaults in the repayment
obligations of any securities for which we have not recorded an other-than-temporary impairment.
Other-than-temporary impairment losses on fixed maturity securities which we intend to sell or more likely than not will be required
to sell before recovery in value are recognized in earnings and equal the entire difference between the security’s amortized cost basis and
its fair value. For securities which we do not intend to sell and it is not more likely than not that we will be required to sell before recovery
in value, other-than-temporary impairment losses recognized in earnings generally represent the difference between the amortized cost of
the security and the present value of our best estimate of cash ows expected to be collected, discounted using the effective interest rate
implicit in the security at the date of acquisition. The determination of cash ows is inherently subjective, and methodologies may vary
depending on the circumstances specic to the security. The timing and amount of our cash ow estimates are developed using historical
and forecast financial information from the issuer, including its current and projected liquidity position. We also consider industry analyst
reports and forecasts, sector credit ratings, future business prospects and earnings trends, issuer refinancing capabilities, actual and/or
potential asset sales by the issuer, and other data relevant to the collectibility of the contractual cash ows of the security. We take into
account the probability of default, expected recoveries, third party guarantees, quality of collateral, and where our debt security ranks in
terms of subordination. We may use the estimated fair value of collateral as a proxy for the present value of cash ows if we believe the
security is dependent on the liquidation of collateral for recovery of our investment. For fixed maturity securities for which we have
recognized an other-than-temporary impairment loss through earnings, if through subsequent evaluation there is a significant increase in
expected cash ows, the difference between the new amortized cost basis and the cash ows expected to be collected is accreted as net
investment income.
We use a comprehensive rating system to evaluate the investment and credit risk of our mortgage loans and to identify specific
properties for inspection and reevaluation. Mortgage loans are considered impaired when, based on current information and events, it is
probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. We establish an
allowance for probable losses on mortgage loans based on a review of individual loans, considering the value of the underlying collateral.
Mortgage loans are not reported at fair value in our consolidated balance sheets unless the mortgage loan is considered impaired, in which
case the impairment is recognized as a realized investment loss in our consolidated statements of income.
There are a number of significant risks inherent in the process of monitoring our investments for impairments and determining when
and if an impairment is other than temporary. These risks and uncertainties include the following possibilities: