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Announcement:

Moody's affirms Unum (sr debt at Baa3); outlook to positive

04 Aug 2011

Approximately $2.3 billion of securities affected

New York, August 04, 2011 -- Moody's Investors Service has affirmed the credit ratings of Unum Group (Unum; NYSE: UNM; senior debt at Baa3), and the A3 insurance financial strength (IFS) ratings of the company's U.S. life insurance subsidiaries. Moody's also changed the outlook on Unum and all of its insurance affiliates to positive from stable.

RATINGS RATIONALE

Commenting on the change in Unum's rating outlook to positive, Moody's Vice President and Senior Credit Officer Ann Perry said, "Unum's positive earnings momentum, improving business diversification, and continuing improvement in financial flexibility is strengthening its credit profile relative to its current ratings." Moody's noted that Unum's earnings diversification has improved as voluntary benefits contribute a growing share of the company's earnings. In addition, because benefit ratios in the company's core long term disability (LTD) business have remained relatively stable throughout the economic slowdown, Moody's expects limited downside risk from an acceleration of claims under its base scenario of a continued sluggish economic recovery.

The rating agency added that the positive outlook also reflects the expectation of further reductions in Unum's financial leverage, currently in the low 20% range, over the next year and continued improvement in the company's earnings coverage, driven both by lower interest expense as debt reduces and by stronger GAAP and statutory earnings.

Moody's said that the ratings affirmation reflects Unum's leading market share in the group long-term and individual disability markets and the company's established position in the voluntary benefits market. The ratings also benefit from the company's access to a huge claims data base, focus on claims management and return-to-work programs, and its strong position in the group life market.

According to the rating agency, Unum also has a good quality and liquid investment portfolio, minimal exposure to structured securities, including non-agency RMBS securities, as well as below average investment concentration in commercial mortgages. During the financial crisis, Unum's impairments as a percent of invested assets were among the lowest in the industry. The rating agency added that it expects future investment losses will continue to be manageable relative to Unum's earnings capacity.

Commenting on the challenges facing Unum, Moody's said that despite improvement in business diversification, a sizeable amount of Unum's product risk profile and earnings are associated with the disability business in both the U.S. and UK. Moody's views the disability product risk profile as one of the higher in the life insurance industry, as this is a long-tailed business and claims development can be influenced in unexpected ways by a variety of economic and societal factors. With the sluggish recovery and persistent unemployment, the rating agency said that claims could increase if there is a double dip recession or unemployment rates increase. However, Moody's noted that the A3 IFS rating incorporates potential for a moderate increase in the incidence and/or duration of disability claims.

Moody's said that the following would place upward pressure on Unum's ratings: 1) a sustained consolidated NAIC RBC ratio of at least 325%; 2) continued pricing discipline and no deterioration of loss ratios (i.e., sustained U.S. group disability loss ratio of not greater than 85%;) 3) adjusted financial leverage remains below 25%; and 4) cash flow and earnings coverage are maintained at levels of at least 5 times and 8 times, respectively. Conversely, the following could result in a return of the outlook back to stable: 1) sustained U.S. group disability loss ratio of over 85%; 2) regulatory capitalization falls below a 325% NAIC RBC ratio; 3) adjusted financial leverage exceeds 25%; or 4) cash-flow and earnings coverage fall below 5 times and 8 times, respectively.

The following ratings have been affirmed with the outlook changed to positive from stable:

Unum Group: Senior unsecured debt at Baa3; senior unsecured shelf at (P)Baa3; subordinate shelf at (P)Ba1; preferred shelf at (P)Ba2;

UNUM Corporation: Senior unsecured debt at Baa3;

Provident Companies, Inc.: Senior unsecured debt at Baa3;

Provident Financing Trust I: Preferred stock at Ba1 (hyb);

UnumProvident Finance Company plc: Senior unsecured debt at Baa3;

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 Co.: Insurance financial strength at A3;

Paul Revere Life Insurance Company: Insurance financial strength at A3;

Paul Revere Variable Annuity Insurance Co.: Insurance financial strength at A3.

Unum Group Financing Trust I/II: Preferred stock shelf at (P)Ba1.

Unum Group is headquartered in Chattanooga, Tennessee. At June 30, 2011, Unum had total assets of approximately $58 billion and total shareholders' equity of about $9 billion.

The principal methodology used in this rating was Moody's Global Rating Methodology for Life Insurers published in May 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology .

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

New York
Ann G. Perry
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Riegel
MD - Insurance
Financial Institutions Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Unum (sr debt at Baa3); outlook to positive
No Related Data.
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