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Unum 2011 Annual Report
Unum
2011
69
We have not invested in mortgage-backed derivatives, such as interest-only, principal-only, or residuals, where market values
can be highly volatile relative to changes in interest rates. All of our mortgage-backed securities have fixed rate coupons. The credit quality
of our mortgage-backed securities portfolio has not been negatively impacted by the issues in the market concerning subprime mortgage
loans. The change in value of our mortgage-backed securities portfolio has moved in line with that of prime agency-backed mortgage-
backed securities.
As of December 31, 2011, the amortized cost and fair value of our below-investment-grade fixed maturity securities was
$2,776.2 million and $2,810.9 million, respectively. Below-investment-grade securities are inherently more risky than investment-grade
securities since the risk of default by the issuer, by definition and as exhibited by bond rating, is higher. Also, the secondary market for
certain below-investment-grade issues can be highly illiquid. Additional downgrades may occur, but we do not anticipate any liquidity
problems resulting from our investments in below-investment-grade securities, nor do we expect these investments to adversely affect
our ability to hold our other investments to maturity.
Investments in Issuers in Certain European Countries
Our investments are chosen for specific portfolio management purposes, including asset and liability management and portfolio
diversification across geographic lines and sectors to minimize non-market risks. In our approach to investing in fixed maturity securities,
specific investments within approved countries and industry sectors are evaluated for their market position and specific strengths and
potential weaknesses. For each security, we consider the political, legal and financial environment of the sovereign entity in which an
issuer is domiciled and operates. The country of domicile is based on consideration of the issuer’s headquarters, in addition to location
of the assets and the country in which the majority of sales and earnings are derived. We continually evaluate our foreign investment
risk exposure, including that within certain countries in the European Union, specifically Greece, Ireland, Italy, Portugal, and Spain.
Our monitoring is heightened for investments in these specific countries due to our concerns over the current economic and political
environments as well as the banking crisis, and we believe these investments are more vulnerable to potential credit problems.
We do not have foreign currency risk, as the cash flows from these investments are denominated in currencies to match the related
liabilities. We have no direct exposure to sovereign debt of these countries and have not used credit derivatives to hedge our exposure or
to sell credit protection. Our exposure relates only to non-financial institutions and is as follows:
European Fixed Maturity Securities Exposure — By Country
(in millions of dollars) As of December 31, 2011
Fair Value Amortized Cost
Greece $ 54.4 $ 50.2
Ireland 61.1 66.3
Italy 196.9 217.1
Portugal 79.7 87.7
Spain 159.6 157.3
Total $551.7 $578.6