MOODY'S DOWNGRADES CREDIT RATINGS (SENIOR DEBT TO A3) OF UNUMPROVIDENT CORP. AND ITS SUBSIDIARIES
Moody's Investors Service has lowered the senior debt rating of UNUMProvident Corp. (UNUMProvident) to A3 from A2, its short -term rating for commercial paper to P-2 from P-1, and lowered the insurance financial strength ratings of its subsidiaries to A1 from Aa3. The outlook on all of the long term ratings is negative, while the outlook for the short-term rating is stable. This rating action concludes a review that was begun on October 12, 1999.
Moody's said that this rating action reflects the disappointing performance of UNUMProvident's group disability block, the impact that diminished earnings have had on the financial leverage and cash flow of the holding company, and the reduced risk-based capital ratios and dividend capacity of the operating companies. Moody's believes that in the near term, UNUMProvident has a reduced ability to upstream dividends from the operating companies, in light of the substantial second and third quarter GAAP and statutory charges stemming from merger related issues, reserve strengthening, and other one time items. The rating agency also cited uncertainties regarding the future financial performance of the run-off business that remains from its Duncanson & Holt operations.
Moody's said that UNUMProvident has an high concentration of business in the individual and group disability lines, which tend to be quite sensitive to economic swings, and subject to changes in societal norms. As a result, any major unforeseen swings in the performance of the disability lines, which are volatile by nature, could potentialy lengthen the period of inadequate cash flow coverages, and cause the company to increase its financial leverage. Moody's said that this factor, in addition to the challenges that the company will face in managing profitable growth while continuing to integrate the UNUM and Provident sides of the operations is the primary reason for the negative outlook on the UNUMProvident long term ratings.
Moody's noted that UNUMProvident has a competitive advantage in being the dominant player in both the individual and group disability markets, and benefits from its substantial pricing power in the market, its ability to influence product design industry-wide, as well as its access to a huge claims data base. According to the rating agency, the company should also enjoy merger related cost savings, operational efficiencies, and potential cross-sell benefits that result from the merger of UNUM and Provident. In addition, the rating agency noted that UNUMProvident has a profitable and expanding group life business and a solid presence in the growing worksite marketing segment.
The following ratings were downgraded:
UNUMProvident Corporation, Inc. -- short-term rating for commercial paper to Prime-2 from Prime-1.
(UNUMProvident Corp.) UNUM Corporation -- senior unsecured debt to A3 from A2; junior subordinated debt of Baa1 from A3.
(UNUMProvident Corp.) Provident Companies, Inc. -- senior debt to A3 from A2; junior subordinated debt to Baa1 from A3; preferred stock to (P)"baa1" from (P)"a2".
Provident Financing Trust I -- preferred stock rating to "baa1" from "a2".
UNUM Life Insurance Company of America -- insurance financial strength rating to A1 from Aa3.
First UNUM Life Insurance Company -- insurance financial strength rating toA1 from Aa3.
Colonial Life & Accident Insurance Company -- insurance financial strength rating to A1 from Aa3.
Provident Life and Accident Insurance Company -- insurance financial strength to A1 from Aa3.
Provident National Assurance Company -- insurance financial strength to A1 from Aa3.
Paul Revere Life Insurance Company -- insurance financial strength to A1 from Aa3.
Paul Revere Protective Life Insurance Company -- insurance financial strength A1 from Aa3.
Paul Revere Variable Annuity Insurance Company -- insurance financial strength to A1 from Aa3.
UNUMProvident Corp., which is headquartered in Chattanooga, Tennessee and Portland, Maine, reported consolidated assets of approximately $38.1 billion and shareholders' equity of about $4.9 billion as of September 30, 1999.
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