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Unum 2011 Annual Report
Unum
2011
63
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 diversified across industry classification 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 flows consistent with the plan reviewed by the finance 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 finance 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 ratification,
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 increased 1.0 percent in 2011 relative to 2010 due primarily to continued growth in the level of invested
assets and higher bond call premiums, partially offset by an increase in the amortization of the principal amount invested in our tax credit
partnerships driven by the higher level of investment in this asset class, a decrease in income on other partnership investments, and a
decline in the level of prepayment income on mortgage-backed securities.
Net investment income increased 6.3 percent 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 2011 and 2010, compared to the preceding years, on
bonds for which interest income is linked to a U.K. inflation index. In addition, we earned lower interest rates on our floating rate invested
assets during 2010 compared to 2009, largely offset by lower interest expense on our floating rate debt.
The duration weighted book yield on the fixed income securities in our investment portfolio was 6.67 percent as of December 31,
2011, compared to a yield of 6.71 percent as of December 31, 2010. As previously noted, we actively manage our asset and liability cash
flow match and our asset and liability duration match to limit interest rate risk. Duration is a measure of the percentage change in the fair
values of assets and liabilities for a given change in interest rates. Cash flows from the in-force asset and liability portfolios are projected at
current interest rate levels and also at levels reflecting an increase and a decrease in interest rates to obtain a range of projected cash flows
under the different interest rate scenarios. These results enable us to assess the impact of projected changes in cash flows and duration
resulting from potential changes in interest rates.