Unum 2010 Annual Report Download - page 63

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Unum 2010 Annual Report
61
Rating Internal Limit
($ in millions)
AAA/AA $200
A 175
BBB+ 150
BBB 125
BBB- 90
BB+ 75
BB 60
BB- 50
B+ 30
B/B- 20
CCC 10
• The portfolio is to be diversied across industry classication and geographic lines.
• Derivative instruments may be used to replicate permitted asset classes, hedge interest rate risk and foreign currency risk, and match
liability duration and cash ows consistent with the plan reviewed by the nance committee of Unum Group’s board of directors and
approved by the boards of directors of our insurance subsidiaries.
• Asset mix guidelines and limits are established by us, reviewed by the nance committee of Unum Group’s board of directors, and
approved by the boards of directors of our insurance subsidiaries.
• The allocation of assets and the selection and timing of the acquisition and disposition of investments are subject to ratication, on
a weekly basis, by an investment subcommittee appointed by the boards of directors of our insurance subsidiaries. These actions are
also reviewed by the finance committee of Unum Group’s board of directors on a quarterly basis.
• We review these investment policies and guidelines annually, or more frequently if deemed necessary, and recommend
adjustments, as appropriate. Any revisions are reviewed by the finance committee of Unum Group’s board of directors and must be
approved by the boards of directors of our insurance subsidiaries.
See “Critical Accounting Estimates” contained herein for further discussion of our valuation of investments.
Investment Results
Net investment income was $2,495.5 million in 2010, an increase of 6.3 percent relative to 2009. Net investment income was higher
in 2010 relative to 2009 due primarily to continued growth in the level of invested assets and higher bond call premiums. We also received
higher interest income during 2010 on bonds for which interest income is linked to a U.K. ination index. These index-linked bonds match
the claim reserves associated with certain of our Unum UK group policies that provide for ination-linked increases in benets, with the
increase or decrease in investment income on these bonds generally offset by an increase or decrease in reserves. In addition, we earned
lower interest rates on our oating rate invested assets during 2010 compared to 2009, largely offset by lower interest expense on our
oating rate debt.
Net investment income was $2,346.6 million in 2009, a decrease of 1.8 percent relative to 2008. The weaker pound in 2009 relative to
2008 unfavorably affected translated results for net investment income. During 2009, we also received lower investment income on bonds
for which interest income is linked to a U.K. ination index, as compared to 2008, and we earned lower interest rates on our oating rate
invested assets during 2009. We also received fewer bond call premiums and consent fees during 2009 compared to 2008. Somewhat
mitigating the impact of these items was the growth in the level of invested assets, an increase in the level of prepayment income on
mortgage-backed securities, and an increase in our portfolio yield due to the investment of new cash at higher rates than that of 2008.