A.M. Best Co. has affirmed the financial strength rating (FSR) 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 franchise, solid capitalization, diversified earnings sources and favorable operating performance. In a challenging economic environment for employee benefits companies, Unum has reported premium growth across most of its core markets, driven by the Unum U.S. segment. The organization continues to generate consistent earnings with an emphasis on underwriting discipline and expense management, and its returns have historically exceeded industry medians. Unum is well recognized in the United States as having a leading position in the group disability market, supplemented by its top-three rankings in group life and voluntary benefits. Over the last several quarters, Unum U.S.’ core group disability segment reported loss ratios in the 84%-85% range, evidencing a lack of volatility that some of its competitors have recently experienced. However, Unum U.K. and Colonial Life have recently reported less favorable sales trends as well as volatility in key metrics for certain product lines. For example, Unum U.K.’s life business recently experienced a noteworthy increase in average claims size, leading to deteriorating profitability for this line of business. A.M. Best notes that persistency within all of Unum’s segments continues to be generally favorable, reflecting the group’s ability to retain quality business. Over the past several years, Unum has maintained its consolidated risk-adjusted capitalization primarily through healthy 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 at roughly 25%, strong interest coverage and just under $800 million of holding company cash and marketable securities, Unum has excellent financial flexibility. Additionally, the organization has approximately $7 billion of net unrealized capital gains in its bond portfolio, with modest exposure to structured securities and real estate-related investments.
With respect to sales growth, A.M. Best expects Unum to continue to face the headwinds of a sluggish U.S. economy and elevated unemployment. Also, the extended period of low interest rates may pressure operating earnings through lower new money yields and inforce product pricing assumptions.A.M. Best believes that Unum’s ratings are well positioned at their current levels in the near to medium term. Factors that could lead to negative rating actions include sizable statutory reserve charges, sustained periods of higher than expected claims incidence, duration or severity; or a considerable decline in operating performance or risk-adjusted 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
UnumProvident Finance Company plc—-- “bbb” on $400 million ($296.5 million outstanding) 6.85% senior unsecured debentures, due 2015 (fully and unconditionally guaranteed by Unum Group) Provident Financing Trust I— -- “bb+” on $300 million ($226.5 million outstanding) 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. 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 © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.