Unum 2011 Annual Report Download - page 70

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Unum 2011 Annual Report
68
Unrealized Loss on Below-Investment-Grade Fixed Maturity Securities
Length of Time in Unrealized Loss Position
2011 2010
(in millions of dollars) December 31 September 30 June 30 March 31 December 31
Fair Value < 100% >= 70% of Amortized Cost
<= 90 days $ 3.3 $ 39.5 $ 3.9 $ 5.2 $ 5.1
> 90 <= 180 days 11.9 15.6 0.7 4.0 0.1
> 180 <= 270 days 8.5 1.6 4.6 0.1 4.1
> 270 days <= 1 year 0.7 6.7 0.1 3.1 —
> 1 year <= 2 years 13.0 13.7 3.5 — —
> 2 years <= 3 years — 0.3 5.3 5.1 14.0
> 3 years 37.3 35.2 18.0 23.3 28.8
Sub-total 74.7 112.6 36.1 40.8 52.1
Fair Value < 70% >= 40% of Amortized Cost
> 180 <= 270 days — 0.7 — — —
> 1 year <= 2 years 5.0 — — — —
> 3 years 2.2 10.3 0.4 0.4 0.4
Sub-total 7.2 11.0 0.4 0.4 0.4
Total $81.9 $123.6 $36.5 $41.2 $52.5
The following table shows our fixed maturity securities with a gross unrealized loss of $10.0 million or greater, by industry type. We held
no securities at December 31, 2011 with a gross unrealized loss of $20.0 million or greater.
Gross Unrealized Losses $10 Million or Greater on Fixed Maturity Securities
(in millions of dollars) As of December 31, 2011
Classification Fair Value Gross Unrealized Loss Number of Issuers
Investment-Grade
Financial Institutions $149.7 $30.7 2
Communications 51.9 10.6 1
$201.6 $41.3 3
At December 31, 2011, our mortgage/asset-backed securities had an average life of 4.28 years, effective duration of 3.78 years, and
a weighted average credit rating of AAA. The mortgage/asset-backed securities are valued on a monthly basis using valuations supplied by
the brokerage firms that are dealers in these securities as well as independent pricing services. One of the risks involved in investing in
mortgage/asset-backed securities is the uncertainty of the timing of cash flows from the underlying loans due to prepayment of principal
with the possibility of reinvesting the funds in a lower interest rate environment. We use models which incorporate economic variables and
possible future interest rate scenarios to predict future prepayment rates. The timing of prepayment cash flows may also cause volatility in
our recognition of investment income. We recognize investment income on these securities using a constant effective yield based on
projected prepayments of the underlying loans and the estimated economic life of the securities. Actual prepayment experience is
reviewed periodically, and effective yields are recalculated when differences arise between prepayments originally projected and the
actual prepayments received and currently projected. The effective yield is recalculated on a retrospective basis, and the adjustment is
reflected in net investment income.