A.M. Best Affirms Ratings of Unum Group and Its Core U.S. Subsidiaries
March 15 2012 - 2:45PM
Business Wire
A.M. Best Co. has affirmed the financial strength rating
of A (Excellent) and issuer credit ratings (ICR) of “a” of the core
U.S. life/health insurance subsidiaries of Unum Group (Unum)
(headquartered in Chattanooga, TN) [NYSE: UNM]. Concurrently, A.M.
Best has affirmed the ICR of “bbb” of Unum as well as all existing
debt securities issued by the organization. The outlook for all
ratings is stable. (See below for a complete listing of the
companies and ratings.)
The rating affirmations reflect Unum’s strong capitalization,
good profitability and generally favorable operating trends,
despite the impact of the weakened economic environment on its core
operations. The group’s operating segments—Unum U.S., Colonial Life
and Unum U.K.—have reported modest sales growth over the past 12
months; however, this was offset by pressure on inforce premiums,
driven by the impact of economic conditions on consumer trends and
increased competition within its core market. A.M. Best notes that
Unum’s core business lines are generating strong earnings and cash
flows, with returns exceeding industry medians. Moreover, A.M. Best
believes capital is being deployed in an efficient and prudent
manner as the enterprise maintains sound risk-adjusted capital
ratios at its operating companies.
Unum’s strong franchise in the United States is anchored by its
leading position in the group disability market and supplemented by
its top-three rankings in group life and voluntary benefits. Its
core group disability segment recently reported a loss ratio that
was relatively flat compared to the prior year (84.6% versus 84.4 %
at year-end 2010), despite a slight uptick in claims incidence
during the second half of 2011, which was consistent with some of
Unum’s competitors. The Unum U.K. business, which markets group
long-term disability, life and supplemental coverages, also
reported somewhat unfavorable disability experience over the past
few quarters due to lower levels of claim resolutions. Colonial
Life, the group’s worksite benefits segment, reported good growth
in premiums driven by sales growth in its core offerings.
Persistency within all segments continues to be generally
favorable, reflecting the group’s ability to retain quality
business.
Unum’s recent strategic decision to exit the marketing of its
group long-term care (LTC) business, placing it into closed block
status with its individual LTC and other run-off lines, resulted in
significant charges relating to reserve strengthening and deferred
acquisition cost impairment. On a GAAP basis, net income was
significantly impacted in the fourth quarter of 2011; however,
there was no statutory impact. At year-end 2011, reserves related
to closed-block business represented over 45% of Unum’s total
reserves. A.M. Best will continue to closely monitor the closed
block for any additional reserve strengthening or other related
charges, which could negatively impact operating results or
risk-adjusted capitalization.
Over the past several years, Unum has maintained its
consolidated risk-adjusted capitalization primarily though
favorable operating results. While the capital cushion at some of
its subsidiaries fluctuates periodically as it is deployed through
share repurchase or other means, A.M. Best believes the group’s
prospective risk-adjusted capital position will remain appropriate
for its ratings. Moreover, with total debt-to-capital below 25%,
interest coverage exceeding 8 times and over $750 million of cash
and marketable securities at the holding company as of December 31,
2011, Unum has excellent financial flexibility. Additionally, the
organization has over $5 billion of unrealized capital gains in its
bond portfolio with modest exposure to structured securities and
real estate-related investments.
A.M. Best expects that Unum will continue to be challenged to
grow total premium income as long as the U.S. economy continues to
be sluggish and unemployment rates remain high. Also, the extended
period of low interest rates continues to inhibit operating
earnings somewhat as new money yields are depressed.
A.M. Best believes that Unum is well positioned at its current
ratings in the near term.
Factors that could lead to negative rating actions include
sizable statutory reserve charges associated with Unum’s recent
exit from the group LTC business or a considerable decline in
operating income or capitalization relative to A.M. Best’s
expectations.
The FSR of A (Excellent) and ICRs of “a” have been affirmed for
the following core U.S. subsidiaries of Unum Group:
- Unum Life Insurance Company of
America
- Provident Life and Accident
Insurance Company
- The Paul Revere Life Insurance
Company
- Colonial Life & Accident
Insurance Company
- First Unum Life Insurance
Company
- Provident Life and Casualty
Insurance Company
The FSR of B++ (Good) and ICR of “bbb” have been affirmed for
The Paul Revere Variable Annuity Insurance Company, a
non-core subsidiary of Unum Group.
The ICR of “bbb” has been affirmed for Unum Group.
The following debt ratings have been affirmed:
Unum Group—-- “bbb” on $350 million 7.125% senior
unsecured notes, due 2016-- “bbb” on $200 million 7.00% senior
unsecured notes, due 2018-- “bbb” on $400 million 5.625% senior
unsecured notes, due 2020-- “bbb” on $250 million 6.75% senior
unsecured notes, due 2028-- “bbb” on $200 million 7.25% senior
unsecured notes, due 2028-- “bbb” on $250 million 7.375% senior
unsecured notes, due 2032
UnumProvident Finance Company plc—-- “bbb” on $400
million 6.85% senior unsecured notes, due 2015
Provident Financing Trust I—-- “bb+” on $300 million
7.405% capital securities, due 2038
The following indicative debt ratings under shelf registration
have been affirmed:
Unum Group—-- “bbb” on senior unsecured-- “bbb-” on
subordinated-- “bb+” on preferred stock
UnumProvident Financing Trust II and III—-- “bb+” on
preferred securities
The methodology used in determining these ratings is Best’s
Credit Rating Methodology, which provides a comprehensive
explanation of A.M. Best’s rating process and contains the
different rating criteria employed in the rating process. Key
criteria utilized include: “Understanding BCAR for Life/Health
Insurers”; “Rating Members of Insurance Groups”; “A.M. Best’s
Perspective on Operating Leverage”, “Assessing Country Risk”; and
“Risk Management and the Rating Process for Insurance Companies.”
Best’s Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and
most authoritative insurance rating and information source. For
more information, visit www.ambest.com
Copyright © 2012 by A.M. Best Company,
Inc. ALL RIGHTS RESERVED.
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