Unum 2011 Annual Report Download - page 66

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Unum 2011 Annual Report
64
To assess the impact of a duration mismatch, we measure the potential changes in estimated fair value based on a hypothetical
change in interest rates to quantify a dollar value change. Although we test the asset and liability portfolios under various interest rate
scenarios as part of our modeling, the majority of our liabilities related to insurance contracts are not interest rate sensitive, and we
therefore have minimal exposure to policy withdrawal risk. Our determination of investment strategy relies more on long-term measures
such as reserve adequacy analysis and the relationship between the portfolio yields supporting our various product lines and the aggregate
discount rates embedded in the reserves.
Realized investment gains and losses, before tax, are as follows:
Year Ended December 31
(in millions of dollars) 2011 2010 2009
Fixed Maturity Securities
Gross Gains on Sales $ 74.0 $ 61.1 $ 48.6
Gross Losses on Sales (24.0) (41.3) (83.5)
Other-Than-Temporary Impairment Loss (19.9) (15.9) (211.8)
Mortgage Loans and Other Invested Assets
Gross Gains on Sales 7.1 7.9 10.0
Gross Losses on Sales (0.5) (0.5) (0.4)
Impairment Loss (0.6) (3.8) (8.1)
Foreign Currency Transactions (1.6) (3.9) 1.5
Embedded Derivative in Modified Coinsurance Arrangement (39.4) 21.1 243.1
Other Derivatives — — 12.3
Net Realized Investment Gain (Loss) $ (4.9) $ 24.7 $ 11.7
Additional information regarding individual realized investment losses of $10.0 million or greater from other-than-temporary
impairments and/or sales during the years 2011, 2010, and 2009, if applicable, is as follows.
Realized Investment Losses $10.0 Million or Greater from Other-Than-Temporary Impairments
• During 2010, we recognized an other-than-temporary impairment loss of $10.2 million on securities issued by a Netherlands financial
services company. The company recorded significant impairment losses in its securities and real estate portfolios during 2009 and
2008 and required a significant amount of government aid. 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 $33.3 million on securities issued by a U.S. media
conglomerate. The company reported mixed fourth quarter 2008 operating results as its outdoor advertising weakened significantly.
During the first quarter of 2009, the company borrowed $1.6 billion against its lines of credit and completed a tender/exchange offer
to improve its near term debt maturity profile. Continued signs that the company’s operations had weakened materially in the first
quarter 2009, as well as the continued weakness in the economy, led us to believe that covenant violations could occur in the near
future. 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 $32.9 million on securities issued by a U.K. financial
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.