Approximately $2.4 billion of securities affected
New York, June 09, 2009 -- Moody's Investors Service has affirmed the credit ratings of Unum Group
(Unum; NYSE: UNM; senior debt at Ba1), as well as
the Baa1 insurance financial strength (IFS) ratings of the company's U.S.
life insurance subsidiaries. The rating outlook for Unum and its
insurance subsidiaries is stable.
Commenting on the rating affirmation, Moody's positively noted
that Unum's financial leverage and earnings and cash flow coverage
metrics have strengthened as GAAP and statutory earnings have improved
over the past 12-18 months. On the negative side,
however, the rating agency said that credit challenges facing Unum
include a concentration of business in the more volatile group and individual
disability lines, which can be adversely impacted during an economic
recession.
In the depressed economic environment, the rating agency said it
is cautious about Unum's current prospects for continued organic
profitability improvement. Moody's Vice President and Senior
Credit Officer, Ann Perry said: "Unum's earnings
have improved over the last several quarters, driven in part by
a shift in the business mix in the core U.S. group disability
line, by stronger underwriting and pricing discipline, and
by the absence of one-time charges. However, we are
concerned that as unemployment rates continue to rise, potential
related increases in the incidence of disability claims could reverse
some of Unum's profitability gains."
In addition, like other insurance groups, Unum is expected
to experience increased investment losses, which totaled about $250
million (gross before realized capital gains) in 2008. Moody's
also commented that Unum has a significant concentration (about 40%
of bonds) in Baa-rated corporate bonds, which are exposed
to rating transition risk to below investment grade levels.
On a positive note, the rating agency said that Unum's earnings
are not sensitive to equity market movements, the company has minimal
exposure to structured securities, including mortgage backed securities,
and it has a below average investment concentration in commercial mortgages.
Given the long-term nature of its liabilities, liquidity
at the operating company is good and holding company liquidity is sound,
with ample cash available for interest payments. Also, there
are no debt maturities until 2011.
Moody's noted that the following factors could result in an upgrade
of Unum's ratings: 1) sustained consolidated NAIC RBC,
of at least 300%; 2) maintaining pricing discipline and no
deterioration of loss ratios (i.e., U. S.
long-term disability loss ratio of not greater than 90%);
3) adjusted financial leverage remains below 25%; and 4) cash
flow coverage is maintained in at least the 6 times range.
According to Moody's, the following factors could result in a downgrade
of Unum's ratings: 1) the capital position or risk profile of the
disability businesses deteriorates as a result of increased claims driven
by the recessionary environment; 2) regulatory capitalization falls
below 275% RBC; 3) pre-tax investment losses over $400
million are sustained or are deemed likely to occur in 2009; 4) adjusted
financial leverage exceeds 35%; or 5) cash-flow coverage
falls below 3 times.
The following ratings have been affirmed with a stable outlook:
Unum Group: Senior unsecured debt at Ba1;
UNUM Corporation: Senior unsecured debt at Ba1;
Provident Companies, Inc.: Senior unsecured debt at
Ba1;
Provident Financing Trust I: Preferred stock at Ba2;
UnumProvident Finance Company plc: Senior unsecured debt at Ba1;
UNUM Life Insurance Company of America: Insurance financial strength
at Baa1;
First UNUM Life Insurance Company: Insurance financial strength
at Baa1;
Colonial Life & Accident Insurance Company: Insurance financial
strength at Baa1;
Provident Life and Accident Insurance Co.: Insurance financial
strength at Baa1;
Paul Revere Life Insurance Company: Insurance financial strength
at Baa1;
Paul Revere Variable Annuity Insurance Co.: Insurance financial
strength at Baa1.
The following ratings have been assigned, with a stable outlook,
to Unum's shelf registration, which replaces a recently expired
shelf:
Unum Group: Senior unsecured debt at (P)Ba1; subordinated shelf
at (P)Ba2; preferred shelf at (P)Ba3;
Unum Group Financing Trust I/II: Preferred stock at (P)Ba2.
Unum Group is headquartered in Chattanooga, Tennessee. At
March 31, 2009, Unum had total assets of $49.2
billion and total shareholders' equity of approximately $6 billion.
Moody's last rating action on Unum Group was on February 14, 2008,
when the rating agency affirmed Unum's ratings (senior debt at Ba1)
and changed the outlook on Unum Group's credit ratings to stable from
negative.
The principal methodology used in rating Unum Group is "Moody's Global
Rating Methodology for Life Insurers", which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating Unum Group can also
be found in the Credit Policy & Methodologies directory.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to pay punctually senior policyholder claims and
obligations.
Visit Moody's website at www.moodys/insurance.com for more
information.
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
Moody's affirms Unum Group's ratings (senior debt at Ba1); stable outlook