Unum 2013 Annual Report Download - page 66

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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
64 / UNUM 2013 ANNUAL REPORT
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, credit 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 or exceptions 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 was slightly lower in 2013 relative to 2012 due primarily to a decline in the yield on invested assets, partially
offset by a higher level of invested assets. Miscellaneous net investment income, which includes income from bond calls and private equity
partnership investments, was relatively consistent on a consolidated basis but exhibited more year-over-year volatility on an operating
segment level.
Net investment income was slightly lower in 2012 relative to 2011 due primarily to a decline in yield on invested assets, an increase
in the amortization of the principal amount invested in our tax credit partnerships, and lower income on our Unum UK inflation index-linked
bonds. These declines were mostly offset by a higher level of invested assets, higher bond call premiums, an increase in income from
private equity partnership investments, and higher prepayment income on mortgage-backed securities.
The duration weighted book yield on the fixed income securities in our investment portfolio was 6.28 percent as of December 31, 2013,
compared to a yield of 6.47 percent as of December 31, 2012. 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 varying interest
rate levels to obtain a range of projected cash flows under different interest rate scenarios.