Unum 2010 Annual Report Download - page 65

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Unum 2010 Annual Report
63
• 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 was 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.
• During 2009, we recognized an other-than-temporary impairment loss of $23.7 million on principal protected equity linked trust
certificates representing our investment in a trust which held forward contracts to purchase shares of a Vanguard S&P 500 index
mutual fund. We recognized the other-than-temporary impairment loss because we intended to sell the security. 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 2009, we recognized an other-than-temporary impairment loss of $20.1 million on securities issued by a large specialty
chemical company. The company reported fourth quarter 2008 earnings that were weaker than expected, which limited its prospects of
refinancing its 2009 debt maturities. The company had been pursuing asset sales to raise cash but was unable to do so in time to avoid
a financial restructuring. During the first quarter of 2009, the company filed for bankruptcy protection. 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 2009, we recognized an other-than-temporary impairment loss of $19.5 million on securities issued by a U.S. automotive
parts company. The majority of the company’s revenues were generated by sales to a single domestic automobile manufacturer.
Due to the weak economy, automobile production had decreased dramatically, with the expectation of further production cuts. The
U.S. government made available a $5 billion credit facility to several automotive parts companies to help maintain automotive
supplier liquidity. However, with their largest customer likely to undergo a major financial restructuring and/or bankruptcy filing, the
company faced increased challenges. In March 2009 its external auditors stated there was “substantial doubt” about the company’s
ability to continue as a going concern if the automotive industry’s financial problems were not resolved soon. 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 $17.5 million on securities issued by a U.K.nancial
institution. During 2008, a significant decrease in funding liquidity ultimately required the U.K. government to nationalize this
institution. In this process, the government provided guarantees on deposits, senior debt, and loans. Since 2008, the company
initiated several programs to improve its liquidity and to repay the loans to the government. In the first quarter of 2009, the company
announced it had developed a plan for a legal and capital restructuring of the company, which it expected to complete in the second
half of 2009. During the second quarter of 2009, the company submitted its plan to the European Commission (EC) and requested
permission to begin the program under EC competition rules. The EC released various aspects of the company’s restructuring plan,
which included splitting the company into multiple entities. It appeared we would be unable to recover the entire cost basis of our
securities, which are subordinate to the government’s debt as well as other creditors. 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.