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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