OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has commented that the Credit Ratings (ratings) of Unum Group (Unum) (headquartered in Chattanooga, TN) [NYSE: UNM] and its insurance subsidiaries remain unchanged following the announcement that the company will be accelerating its annual long-term care (LTC) insurance reserve analysis, which is normally completed in the fourth quarter. Subject to its completion, Unum may need to strengthen its LTC reserves in the third quarter. Although the company is still assessing its assumptions, management expects that any reserve strengthening will predominately be on a GAAP basis and will not exceed $750 million after tax. Unum also has announced that it will not repurchase any shares until the reserve review is completed.
While the charge may erase a significant portion of Unum’s annual earnings on a GAAP basis, A.M. Best believes any impact on a statutory basis will remain manageable, as the company currently maintains a strong level of risk-adjusted capitalization and adequate liquidity throughout the organization. A.M. Best notes that Unum held approximately $1.16 billion of cash and short-term investments at the holding company level as a capital buffer as of June 30, 2018, which represents more than seven times its annual interest expense. In addition, Unum has experienced favorable operating trends in its core group life and long-term disability lines of business with very favorable profitability metrics over the past several years, despite the impact of the low interest rate environment and competitive market conditions. However, should the level of statutory risk-adjusted capitalization decline materially, it could result in a negative ratings action.
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