OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of the core U.S. life/health insurance subsidiaries of Unum Group (Unum) (headquartered in Chattanooga, TN) (NYSE:UNM). Additionally, A.M. Best has upgraded the FSR to A- (Excellent) from B++ (Good) and the Long-Term ICR to “a-” from “bbb” of Unum Insurance Company (Unum Insurance) (Portland, ME). A.M. Best also has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” of Starmount Life Insurance Company (Starmount) (Baton Rouge, LA). Concurrently, A.M. Best has affirmed the Long-Term ICR of “bbb” and the Long-Term Issue Credit Ratings (Long-Term IR) of Unum. The outlook of these Credit Ratings (ratings) is stable. (See below for a complete listing of the companies and ratings.)
The rating affirmations reflect Unum’s favorable operating performance in recent periods, despite the impact of the low interest rate environment, and its robust business profile, with leading market positions in several different markets and diverse distribution networks. Partially offsetting these positive rating factors is the exposure to its significant closed block of long-term care (LTC) policies, which historically has experienced margin pressures from pricing issues and the persistent low rate environment, as well as Unum’s above-average exposure to below investment grade bonds relative to the industry average.
Despite the intense competition in the employee benefits market, Unum continues to generate steady operating results on the strength of its Unum US, Colonial Life & Accident Insurance Company (Colonial Life) and Unum UK operations. The group has experienced favorable trends in premiums written and benefit ratios, which is reflective of Unum’s pricing discipline and its ability to produce consistent cash flows. Unum also has expanded its presence in the dental insurance market, a growing segment, with the recent acquisition of Starmount. While Unum has experienced some fluctuating sales at Unum US over the past five years partially due to distractions from health care reform and more of a focus on the mid-to-smaller case market size, Colonial Life continues to report strong top-line growth benefiting from an increase in demand for voluntary products. This segment also continues to be a stable contributor to overall earnings, reporting strong return-on-equity metrics.
The Unum UK operations 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 and associated companies (National Dental) in 2015. 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 11% of its fixed-income portfolio and 100% of capital and surplus. However, A.M. Best notes that Unum’s investment portfolio historically has provided a stable source of income due to manageable levels of impairments. In addition, there is just modest exposure to real estate and other less-liquid alternative investments. Although it is management’s philosophy to return excess capital to shareholders, largely through share repurchases, this has caused the capital cushion at some of its subsidiaries to fluctuate; however, A.M. Best believes the group’s prospective risk-adjusted capital position will remain appropriate for its ratings. Moreover, with total debt-to-capital at roughly 25%, strong interest coverage and more than $500 million of holding company cash and marketable securities at Dec. 31, 2016, Unum has excellent financial flexibility.
The ratings of Unum Insurance reflect additional capital support from Unum and its plans to launch two new accident and health insurance products in 2017. Unum Insurance had been in run-off for many years, but now will play a more strategic role within the organization.
The FSR of A (Excellent) and the Long-Term 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 has been upgraded to A- (Excellent) from B++ (Good) and the Long-Term ICR has been upgraded to “a-” from “bbb” with a stable outlook for Unum Insurance Company.
The FSR of A- (Excellent) and the Long-Term ICR of “a-” have been affirmed with a stable outlook for Starmount Life Insurance Company.
The Long-Term ICR of “bbb” has been affirmed with a stable outlook for Unum Group.
The following Long-Term IRs have been affirmed with a stable outlook:
-- “bbb” on $200 million 7.00% senior unsecured notes, due 2018
-- “bbb” on $400 million 5.625% senior unsecured notes, due 2020
-- “bbb” on $350 million 3.0% senior unsecured notes, due 2021
-- “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
-- “bbb” on $250 million 5.75% senior unsecured notes, due 2042
Provident Financing Trust I—
-- “bb+” on $300 million 7.405% capital securities, due 2038
The following indicative Long-Term IRs under the shelf registration have been affirmed with a stable outlook:
-- “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 Credit Ratings 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. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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