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Global Credit Research - 12 May 2010
Approximately $2.4 billion of securities affected
New York, May 12, 2010 -- Moody's Investors Service has upgraded the credit ratings of Unum Group
(Unum; NYSE: UNM; senior debt to Baa3 from Ba1),
and the insurance financial strength (IFS) ratings of the company's U.S.
life insurance subsidiaries to A3 from Baa1. The rating outlook
for Unum and its insurance subsidiaries is stable.
Commenting on the rating upgrade, Moody's said that the strengthening
of Unum's credit profile was driven by sustained improvements in
the company's profitability and financial flexibility. Vice
President and Senior Credit Officer, Ann Perry said: "Unum
has revamped its disability business, improved claims management
processes, refocused its strategy to concentrate on small-to-mid
size companies, and re-priced its group business.
This effort has paid off with lower loss ratios, better profitability,
and improvements in the company's franchise."
The rating agency noted that 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 to small-to-medium
size case business, by stronger underwriting and pricing discipline,
and by the absence of one-time charges. In addition,
Unum's financial profile benefits from its moderate financial leverage
(in the low 20% range); by its healthy earnings and cash flow
coverage of its fixed charges; and by a strong liquidity position
at the holding company ($775 million at March 31, 2010).
Moody's added that Unum's U.S. life insurance
companies are also well capitalized, with a consolidated NAIC risk
based capital (RBC) ratio of 382% at year-end 2009.
According to the rating agency, Unum also has a good quality and
liquid investment portfolio, which has minimal exposure to structured
securities, including non-agency RMBS securities, as
well as below average investment concentration in commercial mortgages.
Moody's believes that impairments and realized losses on the company's
investments will be manageable relative to Unum's earnings capacity
and capital base, and will remain within the rating agency's
Commenting on the challenges facing Unum, Moody's said that
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 a sluggish recovery
and persistent unemployment limiting revenue growth, the rating
agency said it is cautious about Unum's current prospects for continued
organic profitability improvement, and that there is a risk of deterioration
in claims experience if unemployment rates remain elevated. However,
Moody's noted that the ratings and stable outlook incorporate the potential
for a moderate increase in the incidence and/or duration of disability
Moody's noted that the following factors could result in an upgrade of
Unum's ratings: 1) a sustained consolidated NAIC RBC ratio of at
least 325%; 2) maintaining pricing discipline and no deterioration
of loss ratios (i.e., U. S. group disability
loss ratio of not greater than 88%); 3) adjusted financial
leverage remains below 25%; and 4) cash flow and earnings
coverage are maintained at levels of at least 6 times and 8 times,
Conversely, Moody's said 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, resulting in a loss ratio
of over 90%; 2) regulatory capitalization falls below a 300%
RBC ratio; 3) pre-tax investment losses (OTTI and realized
capital losses) over $425 million are sustained or are deemed likely
to occur in 2010; 4) adjusted financial leverage exceeds 30%;
or 5) cash-flow and earnings coverage falls below 4 times and 6
The following ratings have been upgraded with a stable outlook:
Unum Group: Senior unsecured debt to Baa3 from Ba1; senior
unsecured shelf to (P)Baa3, from (P)Ba1; subordinate shelf
to (P)Ba1, from (P)Ba2; preferred shelf to (P)Ba2, from
UNUM Corporation: Senior unsecured debt to Baa3, from Ba1;
Provident Companies, Inc.: Senior unsecured debt to
Baa3, from Ba1;
Provident Financing Trust I: Preferred stock to Ba1, from
UnumProvident Finance Company plc: Senior unsecured debt to Baa3,
UNUM Life Insurance Company of America: Insurance financial strength
to A3, from Baa1;
First UNUM Life Insurance Company: Insurance financial strength
to A3, from Baa1;
Colonial Life & Accident Insurance Company: Insurance financial
strength to A3, from Baa1;
Provident Life and Accident Insurance Co.: Insurance financial
strength to A3, from Baa1;
Paul Revere Life Insurance Company: Insurance financial strength
to A3, from Baa1;
Paul Revere Variable Annuity Insurance Co.: Insurance financial
strength to A3, from Baa1.
Unum Group Financing Trust I/II: Preferred stock shelf to (P)Ba1,
Unum Group is headquartered in Chattanooga, Tennessee. At
March 31, 2010, Unum had total assets of approximately $55
billion and total shareholders' equity of about $8.8 billion.
Moody's last rating action on Unum Group was on September 25, 2009,
when the rating agency assigned a Ba1 (stable outlook) debt rating to
the $300 million of fixed rate senior unsecured notes maturing
September, 2016 issued by Unum Group.
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 Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating Unum Group can also be found in the
Rating Methodologies sub-directory on Moody's website.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to pay punctually senior policyholder claims and
Visit Moody's website at www.moodys/insurance.com for more
Financial Institutions Group
Moody's Investors Service
Moody's upgrades Unum Group's ratings (sr debt to Baa3); stable outlook
Ann G. Perry
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
No Related Data.
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