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Rating Action:

MOODY'S CONFIRMS UNUMPROVIDENT CORP.'S CREDIT RATINGS (SENIOR DEBT AT Ba1); NEGATIVE OUTLOOK ASSIGNED

15 Apr 2005
MOODY'S CONFIRMS UNUMPROVIDENT CORP.'S CREDIT RATINGS (SENIOR DEBT AT Ba1); NEGATIVE OUTLOOK ASSIGNED

Approximately $2.8 Billion of Securities Affected

New York, April 15, 2005 -- Moody's Investors Service confirmed the credit ratings of UnumProvident Corporation (UnumProvident - senior debt at Ba1) and the insurance financial strength ratings (Baa1) of UNUM Life Insurance Company of America and the company's other operating life insurance subsidiaries. The outlook for the ratings is now negative. This rating action concludes a review for possible downgrade on UnumProvident's ratings that began on November 22, 2004. The rating agency also assigned ratings to the company's new $1 billion multi-security shelf (senior debt at (P)Ba1).

Moody's said that when UnumProvident's ratings were placed on review last November, the primary driver was the heightened event risk associated with issues concerning broker compensation arrangements in the employee benefit market. Commenting on the rating confirmation, the rating agency said that significant uncertainty and potential risk remained relating to the broker compensation issues and the associated regulatory reviews and litigation. However, the severity of the outcomes for these issues is quite difficult to predict and the timeframe to resolve them could be protracted. Moody's added that it remained concerned about the effect that the broker compensation and related issues could have on the company's ability to place and retain business in the employee benefits market, citing the sharp drop in 2004 sales which the rating agency believes were driven by a combination of increased pricing, customer concern with financial strength, reputation issues, and upheaval in the broker market.

The rating agency said that the confirmation also reflected financial progress that UnumProvident has made in several areas including improved statutory operating earnings which have resulted in stronger dividend capacity for the operating life insurance companies and higher cash coverage of interest expense and shareholder dividends. Moody's noted that UnumProvident's life companies had increased statutory capital and improved the consolidated NAIC risk-based capital (RBC) ratio at year-end 2004. According to the rating agency, UnumProvident has also begun to reduce financial leverage and Moody's said that it expected financial leverage to further improve with the repayment of $227 million of UnumProvident bonds maturing in 2005.

However, the rating agency commented that, in addition to the concerns about sales and retention mentioned above, the negative outlook incorporated concerns about profitability of the old block of long term care (LTC) business, and uncertainty regarding a possible settlement for disability claims handling practices with regulators in California, who did not participate in the multi-state market conduct settlement in 2004.

Moody's said that its rating expectations for UnumProvident included consolidated adjusted financial leverage (adjusted debt / total adjusted GAAP capital) to move to less than 30% by year-end 2005, NAIC RBC for the consolidated life insurance operations of at least 275%, GAAP after-tax net income of at least $500 million in 2005, pre-tax statutory operating earnings of at least $575 million for 2005, an absence of significant one-time charges, cash flow available to the holding company to cover holding company interest and common dividends by at least 1.5 times, and liquidity at the holding company on an ongoing basis of at least $150 million.

According to the rating agency, the following factors could create positive rating momentum for UnumProvident: a reduction in financial leverage to less than 25%, sustained NAIC RBC level of at least 300%, current year GAAP and statutory income 20% higher than the company's 2005 plans, cash coverage of interest expense and shareholder dividends of the holding company of at least 2 times, and return on revenues of at least 5%.

Moody's indicated that factors that could move the rating downward include financial leverage above 30% after year-end 2005, NAIC RBC of less than 275%, annual statutory pre-tax income of less than $450 million, significant adverse consequences from litigation or regulatory examinations, one-time charges in 2005 of over $150 million, sales and persistency levels 15-20% worse than the company's 2005 projections.

The following ratings have been confirmed with a negative outlook:

UnumProvident Corporation - senior unsecured debt of Ba1; mandatorily convertible units/preferred stock of Ba1.

UNUM Corporation (UnumProvident Corp.) - senior unsecured debt of Ba1; junior subordinate debt of Ba2.

Provident Companies, Inc. (UnumProvident Corp.) - senior unsecured debt of Ba1.

Provident Financing Trust I - preferred stock of Ba2.

UNUM Life Insurance Company of America - insurance financial strength of Baa1.

First UNUM Life Insurance Company - insurance financial strength of Baa1.

Colonial Life & Accident Insurance Company -- insurance financial strength of Baa1.

Provident Life and Accident Insurance Company -- insurance financial strength of Baa1.

Paul Revere Life Insurance Company -- insurance financial strength of Baa1.

Paul Revere Variable Annuity Insurance Company -- insurance financial strength of Baa1.

The following ratings have been assigned, with a negative outlook, to the $1 billion multi-security shelf:

UnumProvident Corporation - senior unsecured debt of (P)Ba1; subordinate debt of (P)Ba2; preferred stock of (P)Ba3.

UnumProvident Financing Trust II - preferred stock of (P)Ba2.

UnumProvident Financing Trust III - preferred stock of (P)Ba2

UnumProvident Corporation, headquartered in Chattanooga, Tennessee and Portland, Maine, is the industry's leading provider of group and individual disability insurance. As of December 31, 2004, the company reported consolidated assets of approximately $50.8 billion and shareholders' equity of $7.2 billion.

Moody's Insurance Financial Strength Ratings are opinions of the ability of insurance companies to repay punctually senior policyholder claims and obligations. For more information, please visit our website at www.moodys.com/insurance

New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Ann G. Perry
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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