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22 Nov 2004
MOODY'S PLACES UNUMPROVIDENT CORPORATION (SENIOR DEBT AT Ba1) AND ITS AFFILIATES ON REVIEW FOR POSSIBLE DOWNGRADE
Approximately $2.8 Billion of Securities Affected
New York, November 22, 2004 -- Moody's Investors Service placed 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 on review for
Moody's indicated that the primary driver in placing the ratings on review
was the heightened event risk associated with the issues concerning broker
compensation in the employee benefit market. The rating agency
cited concern about the complaint announced on November 18, 2004
by the California Department of Insurance against UnumProvident and others.
According to Moody's, allegations raised in that complaint
and the New York Attorney General's November 12 complaint against
Universal Life Resources related to UnumProvident's practices in
bidding for employee benefits business and disclosures relating to broker
commissions could result in additional reputation damage for the company.
UnumProvident may also find itself the subject of investigations and civil
suits from the regulators as well as class action law suits by plan participants
and shareholders, according to the rating agency.
Moody's said that the review will focus on the impact that issues
raised by the broker compensation allegations will have on UnumProvident
in executing its business strategy for its core U.S. group
long-term disability (LTD) business, specifically on customer
retention and new sales. The rating agency said that sales in the
company's core U.S. disability lines were lower than
expected through the third quarter of 2004 and that negative publicity
associated with the broker compensation issues could further erode the
company's competitive position. In addition, Moody's
said the review will focus on the impact of potential fines, settlements,
restitution payments, and litigation costs on UnumProvident's
earnings, liquidity, and capital base, as well as on
its ability to take dividends out of the operating companies.
During the review, the rating agency said that it will seek to gain
a greater understanding of the broker commissions as they relate to UnumProvident
and the allegations that have been raised against the company.
Moody's also noted that UnumProvident has not shared any additional
information regarding broker commissions or the ULR complaint with the
rating agency beyond what has been publicly disseminated by UnumProvident
in the company's recent public filings, releases or public
Moody's added that in another development, UnumProvident announced
on November 18 a settlement agreement for the multistate market conduct
examination that had been ongoing since September 2003. The examination
reviewed the company's practices related to market conduct and its
handling of disability claims. The settlement encompasses agreements
with the U.S. Department of Labor and the New York Attorney
General's office and concludes their inquiries and investigation
on UnumProvident's claims practices.
Although the report did not make findings of violations of law,
a fine of $15 million was levied against UnumProvident and the
task force has made a number of recommendations to change the company's
approach to claims management. The settlement includes a claims
reassessment and remediation process for disputed claims since 1997,
changes in the ongoing claims procedures, changes in corporate governance,
and continuing monitoring by the lead regulators of the review.
Moody's believes that the apparent resolution of the multi-state
investigation is positive for the company as it removes some uncertainty
from the company's financial and operating picture. However,
the required changes to the company's claims evaluation and claims
management processes are significant and involve a key component of UnumProvident's
UnumProvident will still have to pass a number of specific tests as part
of the settlement in order to avoid further fines or other regulatory
action. However, since the reassessment and remediation processes
are under the company's control, Moody's believes that
there is low risk that the contingent fines will be triggered.
UnumProvident has estimated that the cost of the remediation process and
the ongoing cost of additional claims and reserving related to the settlement
will be $112 million before tax. Including the $15
million fine, UnumProvident expects to book a total pre-tax
loss of $127 million ($88 million after-tax) in the
fourth quarter of 2004. However, Moody's is concerned
that UnumProvident could incur additional costs (not reflected in the
charge) related to permanent changes in its claims handling process,
corporate governance, and higher claims payments in the future,
thus negatively impacting future earnings.
The following ratings have been placed on review for possible downgrade:
UnumProvident Corporation - senior unsecured debt of Ba1;
subordinate debt of (P)Ba2; preferred stock of (P)Ba3; 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.
UnumProvident Financing Trust II - preferred stock of (P)Ba2.
UnumProvident Financing Trust III - preferred stock of (P)Ba2.
UNUM Life Insurance Company of America - insurance financial strength
First UNUM Life Insurance Company - insurance financial strength
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.
UnumProvident Corporation, headquartered in Chattanooga, Tennessee
and Portland, Maine, is the industry's leading provider of
group and individual disability insurance. As of September 30,
2004, the company reported consolidated assets of approximately
$49.8 billion and shareholders' equity of $6.9
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
Ann G. Perry
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
Financial Institutions Group
Moody's Investors Service
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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