MOODY'S LOWERS CREDIT RATINGS OF UNUM CORP. (SENIOR DEBT TO A2) AND ITS AFFILIATES AND RAISES CREDIT RATINGS OF PROVIDENT COMPANIES, INC. (SENIOR DEBT TO A2) AND ITS AFFILIATES, FOLLOWING THE COMPANIES' MERGER INTO UNUMPROVIDENT CORP.
Moody's Investors Service has lowered the senior debt rating of UNUM Corp. (UNUM) to A2 from A1 and lowered the insurance financial strength ratings of its subsidiaries, UNUM Life Insurance Company of America and First UNUM Life Insurance Company to Aa3 from Aa2. In a related action, Moody's has raised the senior debt rating of Provident Companies, Inc. (Provident) to A2 from A3 and raised the insurance financial strength ratings of Provident Life and Accident Insurance Company and its affiliates to Aa3 from A1. The outlook on all of the ratings is negative. These rating actions conclude a review begun in November, 1998, following UNUM's and Provident's announcement that they had signed a definitive agreement to merge in a stock-for-stock exchange. The merger, which was completed on June 30, 1999, with UNUMProvident Corp. (UNUMProvident) as the surviving entity, will be accounted for as a pooling of interests.
Moody's said that these rating actions reflect the creation of the dominant player in both the individual and group disability markets. UNUMProvident should benefit from substantial pricing power in the market, an ability to influence product design industry-wide, as well as access to a huge claims data base, according to the rating agency. Moody's also cited merger related cost savings, operational efficiencies, and potential cross-sell benefits as strong opportunities for the merged companies. In addition, the rating agency noted that UNUMProvident has a profitable and expanding group life business and a presence in the growing worksite marketing segment.
However, Moody's said that UNUMProvident will have an extremely high concentration in the individual and group disability lines, which tend to be quite volatile, sensitive to economic swings, and subject to changes in societal norms. The rating agency also noted that the company will be challenged to manage profitable growth while integrating the two companies. In the near term, UNUMProvident has a reduced ability to upstream dividends from the operating companies, in light of statutory charges stemming from merger related issues and other one time items. Moody's said that this factor, combined with the company's increased financial leverage and the relatively low risk-based capital ratios at the operating companies, are the primary reasons for the negative outlook on the UNUMProvident ratings.
The following ratings were downgraded:
UNUM Corporation -- senior unsecured debt to A2 from A1; junior subordinated debt to A3 from A2; .
UNUM Life Insurance Company of America -- insurance financial strength rating to Aa3 from Aa2.
First UNUM Life Insurance Company -- insurance financial strength rating to Aa3 from Aa2.
The following ratings have been confirmed:
UNUM Corporation, Inc. -- commercial paper rating of Prime-1.
Colonial Life & Accident Insurance Company -- insurance financial strength rating at Aa3.
The following ratings were upgraded:
Provident Companies, Inc. -- senior debt to A2 from A3; junior subordinated debt to A3 from Baa1.
Provident Financing Trust I -- preferred stock rating to "a2" from "a3".
Provident Life and Accident Insurance Company -- insurance financial strength to Aa3 from A1.
Provident National Assurance Company -- insurance financial strength to Aa3 from A1.
Paul Revere Life Insurance Company -- insurance financial strength to Aa3 from A1.
Paul Revere Protective Life Insurance Company -- insurance financial strength to Aa3 from A1.
Paul Revere Variable Annuity Insurance Company -- insurance financial strength to Aa3 from A1.
Provident Companies, Inc., which was headquartered in Chattanooga, Tennessee, reported consolidated assets of approximately $22.8 billion and shareholders' equity of $3.2 billion as of March 31, 1999. UNUM Corporation, which was headquartered in Portland, Maine, reported consolidated assets of approximately $15.4 billion and shareholders' equity of about $2.7 billion as of March 31, 1999. UNUMProvident Corp. reported pro-forma consolidated assets of $38.1 billion and pro-forma shareholders' equity of about $5.7 billion as of March 31, 1999.
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