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Notes To Consolidated Financial Statements
Unum 2011 Annual Report
118
At December 31, 2011, the fair value of investment-grade fixed maturity securities was $39,675.8 million, with a gross unrealized gain
of $5,951.6 million and a gross unrealized loss of $140.3 million. The gross unrealized loss on investment-grade fixed maturity securities
was 63.1 percent of the total gross unrealized loss on fixed maturity securities. Unrealized losses on investment-grade fixed maturity
securities principally relate to changes in interest rates or changes in market or sector credit spreads which occurred subsequent to the
acquisition of the securities.
At December 31, 2011, the fair value of below-investment-grade fixed maturity securities was $2,810.9 million, with a gross unrealized
gain of $116.6 million and a gross unrealized loss of $81.9 million. The gross unrealized loss on below-investment-grade fixed maturity
securities was 36.9 percent of the total gross unrealized loss on fixed maturity securities. Generally, below-investment-grade fixed maturity
securities are more likely to develop credit concerns than investment-grade securities. At December 31, 2011, the unrealized losses in our
below-investment-grade fixed maturity securities were generally due to credit spreads in certain industries or sectors and, to a lesser
extent, credit concerns related to specific securities. For each specific security in an unrealized loss position, we believe that there are
positive factors which mitigate credit concerns and that the securities for which we have not recorded an other-than-temporary impairment
will recover in value.
As of December 31, 2011, we held 92 individual investment-grade fixed maturity securities and 55 individual
below-investment-grade fixed maturity securities that were in an unrealized loss position, of which 42 investment-grade fixed maturity
securities and 22 below-investment-grade fixed maturity securities had been in an unrealized loss position continuously for over one year.
In determining when a decline in fair value below amortized cost of a fixed maturity security is other than temporary, we evaluate the
following factors:
• Whether we expect to recover the entire amortized cost basis of the security
• Whether we intend to sell the security or will be required to sell the security before the recovery of its amortized cost basis
• Whether the security is current as to principal and interest payments
• The significance of the decline in value
• The time period during which there has been a significant decline in value
• Current and future business prospects and trends of earnings
• The valuation of the security’s underlying collateral
• Relevant industry conditions and trends relative to their historical cycles
• Market conditions
• Rating agency and governmental actions
• Bid and offering prices and the level of trading activity
• Adverse changes in estimated cash flows for securitized investments
• Changes in fair value subsequent to the balance sheet date
• Any other key measures for the related security
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 flow
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 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.