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02 Nov 2006
Moody's changes UnumProvident's outlook to negative
Approximately $2.5 billion of securities affected.
New York, November 02, 2006 -- Moody's Investors Service has changed the outlook on UnumProvident Corporation's
(UnumProvident; NYSE: UNM; senior debt at Ba1) debt ratings,
as well as the Baa1 insurance financial strength ratings of the company's
U.S. life insurance subsidiaries to negative from stable.
Commenting on the change in UnumProvident's outlook, Moody's
cited the third quarter $325 million pre-tax charge in connection
with the disability claims reassessment process. This charge,
in addition to the first quarter 2006 charge of $86 million,
more than tripled the original reserves of $202 million set aside
at the end of 2004 and the beginning of 2005 to cover the multi-state
and the California claims processing settlements. The new charge
stems from the company's prior inaccurate assessment of the level
of claims requiring remediation.
Because the process is continuing, Ann Perry, Moody's
Vice President and Senior Credit Officer, noted that "Moody's
is concerned that current estimates of re-opened claims may prove
inadequate, and additional reserves may be required. Furthermore,
the California and multi-state regulatory settlements could continue
to put pressure on expenses and profits as UnumProvident changes its policy
provisions and policy claims handling procedures for current business
to comply with the agreements." Perry added that absence
of additional one-time charges, including those related to
the claims settlement agreements, had been incorporated into the
company's current rating.
In addition, the rating agency said that it believes that the company
will not achieve a group benefit loss ratio of 92% in its group
protection business by the fourth quarter of 2006. According to
Perry, "although the benefit ratio had improved somewhat since
the beginning of 2006, progress on restoring profitability to the
company's core group protection business was slower that anticipated.
Improvement in the group benefit ratio to 92% by the end of 2006
had been incorporated into Moody's rating expectations."
The rating agency indicated that the change in outlook also reflects the
company's earnings interest coverage, and the likelihood that
UnumProvident's earnings interest coverage for 2006 was likely to
decline to just over 3 times, lower than the rating agency's
expectation of 4 to 6 times.
On the positive side, Moody's noted that the company had shown
improvement in recent years in several of its key financial metrics including
lower financial leverage, stronger cash flow interest coverage and
earnings interest coverage ratios, and stronger consolidated risk
based capital (RBC) ratio.
Moody's said that the factors that could lead to a stable outlook
included the following: ultimate costs for the disability claims
assessment process that are within the company's published range
of expectations; continued improvement in GAAP and statutory profitability
and reduced volatility of earnings; adjusted financial leverage of
less than 30%; sustained consolidated NAIC RBC, including
captive reinsurers, of at least 300%; and cash flow
interest coverage of at least 3-4 times.
The rating agency noted that UnumProvident's rating could be lowered
if the company experiences a negative impact to its franchise, hurting
sales, customer retention, or distribution loyalty as a result
of financial or competitive issues; if profitability, measured
by ROE deteriorates below 5%, either because of reduced operating
profitability or increased charges; if the capital position,
or risk profile of the remaining businesses deteriorates as a result of
capital redeployment of "freed-up" capital associated
with structured transactions; if consolidated RBC, including
captive reinsurers, drops below 275%; if adjusted financial
leverage exceeds 35%; or cash flow interest coverage falls
below 3 times.
The outlook on the following ratings has been changed to negative:
UnumProvident Corporation: Senior unsecured debt at Ba1; subordinated
shelf at (P) Ba2; preferred shelf at (P) Ba3;
UNUM Corporation: Senior unsecured debt at Ba1;
Provident Companies, Inc.: Senior unsecured debt at
Provident Financing Trust I: Preferred stock at Ba2;
Provident Financing Trusts II/III: Backed preferred shelf at (P)
UnumProvident Finance Company plc: Senior unsecured debt at Ba1;
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 at Baa1;
Provident Life and Accident Insurance Co.: Insurance financial
strength at Baa1;
Paul Revere Life Insurance Company: Insurance financial strength
Paul Revere Variable Annuity Insurance Co.: Insurance financial
strength at Baa1.
Moody's last rating action on UnumProvident took place on May 23,
2006 when the rating agency changed the company's rating outlook to stable
UnumProvident Corporation is headquartered in Chattanooga, Tennessee.
At September 30, 2006, UnumProvident had total assets of $52
billion and total shareholders' equity of $7.6 billion.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to punctually repay senior policyholder claims
For more information, visit our website at www.moodys.com/insurance.
Financial Institutions Group
Moody's Investors Service
Ann G. Perry
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
No Related Data.
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