AM Best revises the outlook to negative for Unum Group and its main Life / Health subsidiaries in the United States


OLDWICK, New Jersey – () –AM Best revised the outlook from stable to negative and confirmed the financial strength rating (FSR) of A (Excellent) and the long-term issuer credit ratings (long-term ICR) of “a” of the major US subsidiaries of Unum Group (Unum) Life / Health Insurance (Headquarters in Chattanooga, Tennessee) [NYSE: UNM]. At the same time, AM Best revised the outlook from stable to negative and confirmed the long-term ICR of “bbb” and the long-term issuance credit ratings (long-term IR) of Unum. (See below for a full list of long-term life / health and IR affiliates.)

In addition, AM Best confirmed the FSR of A- (Excellent) and the long-term ICR of “a-” of Unum Insurance Company (Unum Insurance) and Starmount Life Insurance Company (Starmount). Both companies are domiciled in Portland, ME. The outlook for these credit ratings (ratings) remains stable.

The ratings of Unum’s main US life / health insurance subsidiaries reflect the strength of their balance sheets, which AM Best describes as strong, as well as their strong operating performance, favorable business profile and appropriate management of business risks. .

The negative outlook reflects the unfavorable impact of the strengthening of legal reserves for the organization’s closed long-term care (LTC) business block, as well as the impact of unfavorable economic conditions on the investment portfolio and Unum’s operating results. Unum is bolstering its reserves by establishing a premium deficit reserve (PDR) of $ 2.1 billion, which will be accumulated over the next seven years based on an agreement Unum has reached with its main regulator in Maine. Unum strengthened its reserves for the last time in 2018; however, this was only accounted for on a GAAP basis. The PDR is expected to be funded by operating cash flow, but to bolster liquidity, Unum has suspended its share buyback program for 2020, which is primarily funded by dividends from insurance entities.

In addition, AM Best notes that the company is exposed to lower quality bonds and commercial mortgages, as well as a large portion of NAIC Class 2 bonds. 8% of invested assets; about half of fixed income securities are NAIC 2 rated. In addition, Unum has a large portfolio of commercial mortgages, totaling $ 2.4 billion, or 6% of invested assets. The main concern of AM Best is the decline in the credit quality of these fixed income assets.

The strength of Unum’s balance sheet has always been supported by the profitability of the organization and the favorable performance of its investment portfolio. Unum announced strong operating results from its ongoing insurance business with consistent premium growth over the past five years. Loss ratios and persistence have also been relatively stable. However, although operating performance is expected to remain favorable, it is expected to moderate in the near term due to the economic pressure from the COVID-19 pandemic on employer groups and individual members. from Unum. Investment income has shown gradual declines due to persistently low interest rates, a trend that is expected to continue as interest rates are at record highs.

The liquidity of the insurance business is mainly supported by favorable operating cash flows. Additional financial flexibility arises from the holding company’s cash flow and investments, which totaled $ 1.03 billion as at March 31, 2020, a $ 600 million revolving credit facility and access to borrowings from the Federal Home Loan Bank. Unum has about 27% manageable leverage, including its new issuance of $ 500 million senior unsecured notes. Interest coverage was strong eight times for the end of 2019.

Unum is a market leader in the majority of its major product lines, with a diverse national distribution network. The company has a good diversity of revenues in its product portfolio, has expanded its offerings with the introduction of new products and the expansion of its dental business and through its international business. Unum is actively seeking innovation to develop its activity and stand out in the market. Unum’s enterprise risk management program is well developed and integrated with the organization’s strategy and financial planning.

Unum Insurance’s ratings reflect the strength of its balance sheet, which AM Best describes as very strong, as well as its marginal operational performance, limited business profile and proper management of business risks. Unum Insurance has started marketing new products for the organization over the past two years, reporting significant premium growth. Unum Insurance offers pricing and product flexibility to its parent company.

Starmount’s ratings reflect the strength of its balance sheet, which AM Best describes as strong, as well as its adequate operational performance, neutral business profile and appropriate management of corporate risks. Starmount is Unum’s main dental and eye care entity. The company’s product portfolio is distributed under the Unum brand through Unum’s national distribution network. Starmount also underwrites and administers dental products offered by its subsidiary, Colonial Life & Accident Insurance Company. Strong premium growth has been recorded over the past two years. However, operational performance remains unfavorable as the organization develops these lines of business. Unum continues to support Starmount’s growth strategy through capital contributions.

The FSR of A (Excellent) and the long-term ICRs of “a” were confirmed with a revised outlook from negative to stable for the main US life / health subsidiaries of the Unum Group:

  • Unum Life Insurance Company of America

  • Life insurance and accident insurance company

  • The Paul Revere Life Insurance Company

  • Colonial Life and Accident Insurance Company

  • First Unum Life Insurance Company

  • Provident life and damage insurance company

The following Long Term IR has been assigned with a negative outlook:

Unum Group—

– “bbb” on $ 500 million of 4.50% senior unsecured notes, due 2025

The following long-term IRs were confirmed with a revised outlook from stable to negative:

Unum Group—

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

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

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

– “bbb” on $ 250 million of 6.75% senior unsecured notes, maturing in 2028

– “bbb” on $ 200 million of 7.25% senior unsecured notes, maturing in 2028

– “bbb” on $ 400 million of 4.00% senior unsecured notes, due 2029

– “bbb” on $ 250 million of 7.375% senior unsecured notes, maturing in 2032

– “bbb” on $ 250 million of 5.75% senior unsecured notes, maturing in 2042

– “bbb” on $ 250 million of 5.75% senior unsecured notes, maturing in 2042

– “bbb” on $ 450 million of 4.50% senior unsecured notes, maturing in 2049

– “bb +” on $ 300 million of 6.25% subordinated notes, maturing in 2058

Provident Funding Trust I—

– “bb +” on $ 300 million of 7.405% equity securities, maturing in 2038

The following indicative long-term IRs under provisional registration have been confirmed with the outlook revised from stable to negative:

Unum Group—

– “bbb” on senior not guaranteed

– “bbb-” on subordinate

– “bb +” on the preferred shares

Unum I and II Group Funding Trust—

– “bb +” on preferred securities

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