Business & Finance
Business and Finance
Business and Finance
Tue, February 1, 2011Mon, January 31, 2011Sun, January 30, 2011Sat, January 29, 2011Fri, January 28, 2011Thu, January 27, 2011Wed, January 26, 2011Tue, January 25, 2011Mon, January 24, 2011Fri, January 21, 2011Thu, January 20, 2011Wed, January 19, 2011A.M. Best Upgrades Ratings of Unum Group and Its Core U.S. Subsidiaries
Published in Business and Finance on Wednesday, January 26th 2011 at 7:40 GMT by Market Wire
OLDWICK, N.J.--([ BUSINESS WIRE ])--A.M. Best Co. has upgraded the financial strength rating (FSR) to A (Excellent) from A- (Excellent) and issuer credit ratings (ICR) to aaa from aa-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 ICR to abbba from abbb-a, along with the associated existing debt securities of Unum. The outlook for all ratings has been revised to stable from positive. (See link below for a complete listing of the companies and ratings.)
"A.M. Besta™s Ratings & the Treatment of Debt."
The upgrades reflect Unuma™s continued favorable operating results, strong capitalization and its success in navigating through a challenging U.S. economy over the past few years. Despite the weak economy, the enterprise continues to generate steady operating results on the strength of its Unum U.S., Colonial Life and Unum U.K. operations. The loss ratio for Unuma™s U.S. group disability segment continues to trend lower, having declined in each of the past four years (from 94.8% in 2006 to 84.5% through the first nine months of 2010). While a few of Unuma™s competitors have recently experienced some weakness in their long-term disability income blocks, Unum has not encountered these same issues. This speaks well to the companya™s ability to maintain pricing discipline during the ongoing difficult economic environment.
Over the past several years, Unum has strengthened its consolidated risk-adjusted capitalization primarily though favorable operating results. While the capital cushion at some of its subsidiaries may be lowered near term as it is deployed through share repurchase or other means, A.M. Best believes the groupa™s prospective risk-adjusted capital position will remain appropriate for its ratings. Moreover, with total debt-to-capital below 25%, interest coverage greater than 8 times and over $1 billion of cash and marketable securities at the holding company as of September 30, 2010, Unum has excellent financial flexibility. The organization has over $5 billion of unrealized capital gains in its bond portfolio with modest exposure to structured securities and real estate-related investments.
While overall net premium income is down slightly in recent years due to Unuma™s changing business mix and the headwinds of a weak economy, core sales to U.S. employer groups of 2,000 or less have trended up over the past two years. This demonstrates the organizationa™s strong brand recognition and attractive portfolio of true group and voluntary products. Additionally, the company benefits from having a diverse business mix. Over the past decade, Unum has become noticeably less reliant on traditional disability income products for premium income and operating gains. Today, approximately half of the enterprisea™s new sales originate through voluntary offerings through its Voluntary Benefits and Colonial Life segments.
A.M. Best expects that Unum will continue to be challenged to grow total premium income as long as the U.S. economy continues to be sluggish and unemployment rates remain high. Also, an extended period of low interest rates could inhibit operating earnings somewhat as new money yields decline. A.M. Best notes, however, that Unum has maintained solid interest margins (nearly 100 basis points at September 30, 2010) on its long-term disability reserves, which is well in excess of its competitors, giving the company a cushion before it would materially impact the results of that product line. Other concerns regarding Unum are the management of its large, run-off individual long-term care block and the likelihood that near-term operating returns on Unuma™s U.K. unit may remain below those reported over the past few years (albeit very strong relative to the norms for U.S. group business).
For a complete listing of Unum Group and its subsidiariesa™ FSRs, ICRs and debt ratings, please visit [ www.ambest.com/press/012602unum.pdf ].
The principal methodology used in determining these ratings is [ Besta™s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition ], which provides a comprehensive explanation of A.M. Besta™s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: aRisk Management and the Rating Process for Insurance Companiesa; aAssessing Country Riska; a[ Rating Members of Insurance Groups ]a; aUnderstanding BCAR for Life and Health Insurersa; aRating Health Insurance Companiesa; and a[ A.M. Besta™s Ratings & the Treatment of Debt ].a Methodologies can be found at [ www.ambest.com/ratings/methodology ].
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit [ www.ambest.com ].
Copyright © 2011 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.
