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Rating Action:

MOODY'S PLACES UNUMPROVIDENT CORP.'S CREDIT RATINGS (SENIOR DEBT AT Baa3) ON REVIEW FOR POSSIBLE DOWNGRADE

07 Mar 2003
MOODY'S PLACES UNUMPROVIDENT CORP.'S CREDIT RATINGS (SENIOR DEBT AT Baa3) ON REVIEW FOR POSSIBLE DOWNGRADE

Approximately $ 2.2 Billion of Debt Securities Affected.

New York, March 07, 2003 -- Moody's Investors Service placed 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 on review for possible downgrade.

Moody's said that the review will focus on the quality of the investment portfolio, the potential for credit impairments, the resolution of the company's current discussions with the SEC about the investment portfolio, the ability of the company to raise new equity and equity-like capital, and the level and quality of statutory capital particularly in light of the substantial amount of intercompany loans from the operating life insurance companies to the holding company. The rating agency indicated that the review will also examine the cash flows available to the holding company to service its cash needs and the increased pressure on the life companies' ability to upstream dividends to the holding company. In addition, Moody's said that it will review UnumProvidant's operations, the ability of the life companies to generate statutory capital internally through earnings, and the ability to free up capital through de-risking measures. Moody's said that it will incorporate management's financial and capital plans into the review.

The rating agency noted that as of December 31, 2002, UnumProvident had approximately $870 million of unrealized losses associated with a portion of the below investment grade bond portfolio which has a carrying value of $2.1 billion. $464 million of these unrealized losses were aged more than nine months. The rating agency commented that the extent to which these securities could become impaired or the losses would become realized will clearly effect its view of the adequacy of the operating companies' statutory capital.

The rating agency said it believed that the level of statutory capital at the operating subsidiaries needs to be increased and it will examine the company's capital plan, its ability to raise new equity and equity-like capital, the timing of resolution of the SEC comment letter and activation of the company's shelf, as well as the accounting treatment of credit impairments. Moody's said that it will also analyze the impact of any capital raising activities on the operating companies' statutory capital, holding company cash needs, and holding company financial leverage.

According to the rating agency, the intercompany loans, which negatively effect the quality of statutory capital, grew to nearly $700 million or approximately 20% of combined statutory capital at year end 2002. The increase from third quarter resulted from UnumProvident refinancing its commercial paper with proceeds from repurchase agreements executed at the life companies and then lent to the holding company. The rating agency said that it expected that proceeds from any issuance of equity and equity-like capital would be used to reduce intercompany loans.

Moody's said that there were a number of widely differing possible outcomes for the rating review that would be dependent on the resolution of two major credit issues. The first is the resolution of the SEC comment letter and the resulting accounting treatment for UnumProvident's unrealized investment losses. The second is the activation of UnumProvident's shelf registration and the company's successful raising of substantial new equity and equity-like captial. According to the rating agency, the various rating outcomes range from confirmation of existing ratings to downgrades of one or more notches.

Moody's said that UnumProvident's strengths include a leadership position in the group long-term and individual disability markets, expertise in claims management, 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, and excellent case-management capability and service.

The following ratings have been placed on review for possible downgrade:

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 December 31, 2002, the company reported consolidated assets of approximately $45.3 billion and shareholders' equity of $6.8 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
Robert Blanchard
Analyst
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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