Unum 2011 Annual Report Download - page 82

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Unum 2011 Annual Report
80
As previously noted, our investment policy also permits us to lend fixed maturity securities to unaffiliated financial institutions in short-
term securities lending agreements, which increase our investment income with minimal risk. We account for all of our securities lending
agreements and repurchase agreements as collateralized financings. We had $312.3 million of securities lending agreements outstanding
which were collateralized by cash at December 31, 2011 and were reported as short-term debt in our consolidated balance sheets. The cash
received as collateral was reinvested in short-term investments. The average balance during 2011 was $175.8 million, and the maximum
amount outstanding at any month end was $389.8 million. In addition, at December 31, 2011, we also had $16.7 million of off-balance
sheet securities lending agreements which were collateralized by securities that we were neither permitted to sell nor control. The average
balance of these off-balance sheet transactions during 2011 was $5.5 million, and the maximum amount outstanding at any month end
was $16.7 million.
We had no repurchase agreements outstanding at December 31, 2011, nor did we utilize any repurchase agreements during 2011.
Our use of repurchase agreements and securities lending agreements can fluctuate during any given period and will depend on our liquidity
position, the availability of long-term investments that meet our purchasing criteria, and our general business needs.
Ratings
AM Best, Fitch, Moody’s, and S&P are among the third parties that assign issuer credit ratings to Unum Group and financial strength
ratings to our insurance subsidiaries. Issuer credit ratings reflect an agency’s opinion of the overall financial capacity of a company to meet
its senior debt obligations. Financial strength ratings are specific to each individual insurance subsidiary and reflect each rating agency’s
view of the overall financial strength (capital levels, earnings, growth, investments, business mix, operating performance, and market
position) of the insuring entity and its ability to meet its obligations to policyholders. Both the issuer credit ratings and financial strength
ratings incorporate quantitative and qualitative analyses by rating agencies and are routinely reviewed and updated on an ongoing basis.
We compete based in part on the financial strength ratings provided by rating agencies. A downgrade of our financial strength ratings
can be expected to adversely affect us and could potentially, among other things, adversely affect our relationships with distributors of our
products and services and retention of our sales force, negatively impact persistency and new sales, particularly large case group sales and
individual sales, and generally adversely affect our ability to compete. A downgrade in the issuer credit rating assigned to Unum Group can
be expected to adversely affect our cost of capital or our ability to raise additional capital.
The table below reflects the issuer credit ratings for Unum Group and the financial strength ratings for each of our traditional insurance
subsidiaries as of the date of this filing.
AM Best Fitch Moody’s S&P
Issuer Credit Ratings bbb (Good) BBB (Good) Baa3 (Adequate) BBB- (Adequate)
Financial Strength Ratings
Provident Life and Accident A (Excellent) A (Strong) A3 (Good) A- (Strong)
Provident Life and Casualty A (Excellent) A (Strong) Not Rated Not Rated
Unum Life of America A (Excellent) A (Strong) A3 (Good) A- (Strong)
First Unum Life A (Excellent) A (Strong) A3 (Good) A- (Strong)
Colonial Life & Accident A (Excellent) A (Strong) A3 (Good) A- (Strong)
Paul Revere Life A (Excellent) A (Strong) A3 (Good) A- (Strong)
Paul Revere Variable B++(Good) A (Strong) A3 (Good) Not Rated
Unum Limited Not Rated Not Rated Not Rated A- (Strong)
We maintain an ongoing dialogue with the four rating agencies that evaluate us in order to inform them of progress we are making
regarding our strategic objectives and financial plans, as well as other pertinent issues. A significant component of our communications
involves our annual review meeting with each of the four agencies. We hold other meetings throughout the year regarding our business,
including, but not limited to, quarterly updates.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations