A.M. Best Affirms Ratings of Unum Group and Its Core U.S. Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a” of the core U.S. life/health insurance subsidiaries of Unum Group (Unum) (headquartered in Chattanooga, TN) [NYSE:UNM]. Concurrently, A.M. Best has affirmed the ICR of “bbb” of Unum, as well as all existing debt securities issued by the organization. The outlook for all ratings is stable. (See below for a complete listing of the companies and ratings.)

The rating affirmations reflect Unum’s leading market positions in the group and voluntary benefit markets, a well-diversified liability profile and its favorable operating performance, despite the challenging macro-economic environment. Partially offsetting these positive factors are the weak performance in the company’s closed block of long-term care (LTC) policies in recent years and above-average exposure to below investment grade bonds relative to the industry. A.M. Best recognizes that Unum’s LTC business, which has experienced margin pressures from pricing issues and the persistent low interest rate environment, continues to act as an earnings headwind and represents a significant portion of Unum’s capital.

Despite the sluggish economy and intense competition in the employee benefits market, the enterprise continues to generate steady operating results primarily driven by its Unum U.S., Colonial Life & Accident Insurance Company and Unum UK operations. The group has experienced favorable trends in premiums and benefit ratios, which speak well to Unum’s pricing discipline and its ability to produce consistent cash flows.

More specifically, Colonial Life has reported strong top-line growth in recent periods benefiting from an increase in demand for its voluntary products. This segment also continues to be a stable contributor to overall earnings, reporting strong return-on-equity metrics. At Unum UK, the company has expanded its leading position in income protection via an acquisition of 100 percent of the common shares and voting interests in National Dental Plan Limited (National Dental) and associated companies. National Dental is a provider of dental insurance in the U.K. workplace. In addition, the repricing of group life insurance business a few years ago has resulted in favorable operating results in this segment.

Unum’s investment portfolio maintains a relatively high level of below investment grade bonds at approximately 10 percent of its fixed-income portfolio, and its exposure to the energy sector is also relatively high at approximately 12 percent of fixed-income securities. However, A.M. Best notes that Unum’s investment portfolio has historically provided a stable source of income due to manageable levels of impairments. In addition, there is only modest exposure to real-estate and other less liquid alternative investments. Although management’s philosophy to return “excess” capital to shareholders, through share repurchase and stockholder dividends, has caused the capital cushion at some of its subsidiaries to fluctuate, A.M. Best believes the group’s risk-adjusted capital position remains appropriate for its ratings. Moreover, with total debt-to-capital at roughly 22 percent, strong interest coverage and almost $500 million of holding company cash and marketable securities at Dec. 31, 2015, Unum has excellent financial flexibility.

A.M. Best believes that a positive rating may occur if both premiums and earnings continue to trend positively with no material LTC reserve charges. Factors that could lead to a negative rating action include a considerable decline in operating income due to increased morbidity experience or additional material reserve charges within the LTC business.

The FSR of A (Excellent) and the ICRs of “a” have been affirmed with a stable outlook for the following core U.S. subsidiaries of Unum Group:

• Unum Life Insurance Company of America
• Provident Life and Accident Insurance Company
• The Paul Revere Life Insurance Company
• Colonial Life & Accident Insurance Company
• First Unum Life Insurance Company
• Provident Life and Casualty Insurance Company

The FSR of B++ (Good) and the ICR of “bbb” have been affirmed with a stable outlook for Unum Insurance Company, a non-core subsidiary of Unum Group.

The ICR of “bbb” has been affirmed with a stable outlook for Unum Group.

The following issue ratings have been affirmed with a stable outlook:

Unum Group—

-- “bbb” on $350 million 7.125% senior unsecured notes, due 2016

-- “bbb” on $200 million 7.00% senior unsecured notes, due 2018

-- “bbb” on $400 million 5.625% senior unsecured notes, due 2020

-- “bbb” on $250 million 6.75% senior unsecured notes, due 2028

-- “bbb” on $200 million 7.25% senior unsecured notes, due 2028

-- “bbb” on $250 million 7.375% senior unsecured notes, due 2032

-- “bbb” on $250 million 5.75% senior unsecured notes, due 2042

-- “bbb” on $350 million 4.00% senior unsecured notes, due 2024

-- “bbb” on $275 million 3.875% senior unsecured notes, due 2025

Provident Financing Trust I—

-- “bb+” on $300 million 7.405% capital securities, due 2038

The following indicative ratings under the shelf registration have been affirmed with a stable outlook:

Unum Group—

-- “bbb” on senior unsecured

-- “bbb-” on subordinated

-- “bb+” on preferred stock

Unum Group Financing Trust I and II—

-- “bb+” on preferred securities

This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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A.M. Best

Michael Adams, 908-439-2200, ext. 5133

Senior Financial Analyst

[email protected]

or

Joseph Zazzera, MBA, 908-439-2200, ext. 5797

Assistant Vice President

[email protected]

or

Christopher Sharkey, 908-439-2200, ext. 5159

Manager, Public Relations

[email protected]

or

Jim Peavy, 908-439-2200, ext. 5644

Assistant Vice President, Public Relations

[email protected]

Source: A.M. Best Company, Inc.