A.M. Best Comments on IDI Reserve Charge and Maintains Negative Outlook on All Ratings; Assigns Debt Rating to UnumProvident Corp.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--May 6, 2004

A.M. Best Co. has commented on the announcement by UnumProvident Corp. (NYSE: UNM) (Chattanooga, TN) to take an $967 million pre-tax charge, including a write-off of intangible assets and a strengthening of reserves associated with its closed block of Individual Disability Income (IDI). The impairment charge reflects the organization's desire to segregate this business for reporting and management purposes. Additionally, the company will purchase reinsurance coverage for this closed block and raise additional equity to partially offset this charge and expenses related to the reinsurance transaction.

After discussing the methodology and assumptions related to the charge, A.M. Best is comfortable with the level of due diligence taken by UnumProvident and its outside consultants in determining the charge and that UnumProvident's reserves are currently adequate on its individual disability income block. The charge, however, does increase the organization's leverage position.

While the latest charge is the third sizeable charge taken during the past year, A.M. Best recognizes that the old IDI block has been an issue for UnumProvident for several years. The planned structure finally gives UnumProvident the opportunity to implement an alternative to segregate the business and to remove volatility from the group's ongoing GAAP operating results.

In conjunction with the IDI segmentation, UnumProvident has raised $300 million of additional capital through a private offering to somewhat offset the financial impact of this transaction. Debt-to-capital ratios and interest coverage remain within acceptable levels following the addition of this debt but are at the outside range for the current ratings.

A.M. Best has assigned a debt rating of "bbb-" to the new $300 million 8.25% adjustable conversion rate equity security units due May 2007 of UnumProvident. Concurrently, A.M. Best has affirmed the financial strength ratings of A- (Excellent) on the group's insurance subsidiaries. The outlook for all ratings remains negative.

Although statutory results showed improvement in the first quarter of 2004, A.M. Best still foresees numerous challenges for the organization near term in managing its core disability income business. Consequently, A.M. Best is maintaining the negative outlook on all of UnumProvident's ratings. While the latest economic data is encouraging, accelerated new job growth and higher interest rates would facilitate UnumProvident's recovery. Near-term core earnings will likely remain relatively modest. Additionally, as the organization reprices its long-term disability block, its persistency and the level of new sales will suffer, which A.M. Best believes could cause stress to UnumProvident's field force.

Should any additional unexpected charges or major negative developments occur, A.M. Best will likely downgrade UnumProvident's ratings.

For a complete list of UnumProvident Corp's financial strength and debt ratings, please visit www.ambest.com/press/050601unum.pdf.

For a list of A.M. Best's debt ratings, please visit http://www3.ambest.com/debtratings/.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.