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Rating Action:

MOODY'S CONFIRMS UNUMPROVIDENT CORP.'S CREDIT RATINGS (SENIOR DEBT AT Baa3) -- OUTLOOK IS NEGATIVE; ASSIGNS RATING (Baa3) TO MANDATORILY CONVERTIBLE UNITS

09 May 2003
MOODY'S CONFIRMS UNUMPROVIDENT CORP.'S CREDIT RATINGS (SENIOR DEBT AT Baa3) -- OUTLOOK IS NEGATIVE; ASSIGNS RATING (Baa3) TO MANDATORILY CONVERTIBLE UNITS

Approximately $2.6 Billion of Securities Affected.

New York, May 09, 2003 -- Moody's Investors Service confirmed the credit ratings of UnumProvident Corporation (UnumProvident - senior debt at Baa3) and the insurance financial strength ratings (A3) of UNUM Life Insurance Company of America and the company's other operating life insurance subsidiaries. Moody's also assigned a rating of Baa3 to UnumProvident's $500 million issue of convertible preferred securities. The outlook for the group's ratings is negative.

The rating agency said that it viewed the company's capital raising program positively. On May 7, 2003, UnumProvident completed raising $500 million in common equity and $500 million in Manadatorily Convertible Units and received net proceeds of approximately $960 million. The company plans to use the proceeds as follows: $535 million to reduce intercompany loans, $255 million as a capital injection to the life insurance companies, $170 million to be retained by the holding company and to be used to pay interest and common share dividends. In addition, UnumProvident will contribute its GENEX subsidiary and a corporate-owned life insurance policy (issued by another life insurer), together valued at approximately $265 million, to the life insurance subsidiaries. As a result of these actions, Moody's expects that the consolidated NAIC risked-based capital ratio (RBC) will increase approximately 35 percentage points.

UnumProvident will reduce intercompany loans to approximately $160 million from the current level of $700 million. Moody's expects that there will be no further utilization of intercompany loans or repurchase agreements at the operating company to fund holding company cash needs. The rating agency also said that it expects that the balance of the intercompany loans will be repaid in full by the end of 2005. The rating agency noted that the reduction in intercompany loans will substantially improve the quality of statutory capital at the operating companies.

The rating agency said that UnumProvident's retaining $170 million of cash gives the holding company additional flexibility for the balance of 2003 and reduces pressure on the operating life insurance companies' capital base, as no dividends will be paid to the holding company for the balance of the year. The rating agency cited, as a positive step, UnumProvident's move to cut the shareholder dividend, which will reduce the cash demands on the holding company.

The rating agency said that its confirmation of UnumProvident's ratings incorporates the expectation that the company will not increase its financial leverage, which was approximately 27% as of March 31, 2003, on a proforma basis. Moody's added that the ratings confirmation also incorporates the expectation that statutory operating and net income will be positive on a quarterly basis going forward. Moody's said that it expects statutory income to be sufficient to provide dividends to the holding company to service its obligations and to repay intercompany loans, as well as to increase statutory capital and improve the company's RBC.

The rating agency believes that UnumProvident faces a number of challenges in executing its business plan and strategy. Moody's said that the weak economic environment can constrains sales and contribute to increases in incidence and duration of disability claims. In addition, the rating agency cited increased competition in the disability marketplace, in some cases from players whose more diversified business lines and greater capital bases give them more financial and operating flexibility.

Moody's also said that it was concerned that the adverse publicity experienced by UnumProvident over the last several quarters could hurt the company's ability to grow and to execute its business plans. The rating agency said that it believes that the first quarter drop in claim recovery rates and the expectation for continued lower recovery rates that led to the company's first quarter 2003 GAAP reserve increase were driven by these factors. In the near-to-medium term, Moody's said that it expects to see sluggish sales and constrained earnings.

According to the rating agency, the company's non-investment grade securities portfolio contains a sizable amount of economic loss content and Moody's said that it expects the company will continue to incur realized capital losses in the near-to-medium term.

As of March 31, 2003, UnumProvident had approximately $635 million of unrealized losses associated with a portion of its below-investment grade bond portfolio, which has a carrying value of $1.8 billion. $461 million of these unrealized losses were aged more than nine months. Moody's commented that the extent to which these securities could become impaired or the losses could become realized would clearly effect its view of statutory net earnings and statutory capital.

Moody's said that UnumProvident's strengths include a leadership position in the group long-term and individual disability markets, access to a huge claims data base, focus on claims management and return-to-work programs, and a solid presence in the growing worksite marketing area. UnumProvident, Moody's noted, is the market leader in disability insurance in the United States with superior market share.

The following rating was assigned with a negative outlook:

UnumProvident Corporation Mantatorily Convertable Units - Senior debt at Baa3.

The following ratings have been confirmed with a negative outlook:

UnumProvident Corporation - senior unsecured debt at Baa3; subordinate debt at (P)Ba1; preferred stock at (P)Ba2; commercial paper rating at Prime-3.

UNUM Corporation (UnumProvident Corp.) - senior unsecured debt at Baa3; junior subordinate debt at Ba1.

Provident Companies, Inc. (UnumProvident Corp.) - senior debt at Baa3.

Provident Financing Trust I - preferred stock at Ba1.

UnumProvident Financing Trust II - preferred stock at (P)Ba1.

UnumProvident Financing Trust III - preferred stock at (P)Ba1.

UNUM Life Insurance Company of America - insurance financial strength at A3.

First UNUM Life Insurance Company - insurance financial strength at A3.

Colonial Life & Accident Insurance Company -- insurance financial strength at A3.

Provident Life and Accident Insurance Company -- insurance financial strength at A3.

Paul Revere Life Insurance Company -- insurance financial strength at A3.

Paul Revere Variable Annuity Insurance Company -- insurance financial strength at A3.

UnumProvident Corporation, headquartered in Chattanooga, Tennessee and Portland, Maine, is the industry's leading provider of group and individual disability insurance. As of March 31, 2003, the company reported consolidated assets of approximately $46.3 billion and shareholders' equity of $6.5 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 Web site 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.
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