A.M. Best Downgrades UnumProvident's Group Financial Strength Rating.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--Aug. 17, 2001 A.M. Best Co. has downgraded the financial strength rating of UnumProvident Corporation's, Chattanooga, Tennessee “Chattanooga” redirects here. For other uses, see Chattanooga (disambiguation). Chattanooga is the fourth-largest city in Tennessee (after Memphis, Nashville, and Knoxville), and the seat of Hamilton CountyGR6 , (NYSE NYSE See: New York Stock Exchange :UNM UNM University of New Mexico UNM UnumProvident Corporation UNM Under New Management UNM United Nations Medal UNM User Name Mapping ) life/health insurance companies to A (Excellent) from A+ (Superior). A.M. Best had previously viewed the rating outlook on the group as negative. The downgrade Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. reflects the group's high concentration and reliance on group and individual disability income products for both premium income and profits. A.M. Best also notes that UnumProvident's overall GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ROEs are not projected to reach Superior levels for the next few years. In addition, while reduced in 2000, the organization's leveraged position is currently above the levels expected for organizations with the highest financial strength ratings. Following the merger of Unum Corp. and Provident prov·i·dent adj. 1. Providing for future needs or events. 2. Frugal; economical. [Middle English, from Latin pr Companies, Inc. nearly two years ago, approximately three-fifths of the organization's premium income and pre-tax operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before are derived from individual and group disability income coverages. Both product lines are volatile in nature and have experienced considerable changes over the past decade. Evidence of this can be observed in the organization's fluctuating fluc·tu·ate v. fluc·tu·at·ed, fluc·tu·at·ing, fluc·tu·ates v.intr. 1. To vary irregularly. See Synonyms at swing. 2. To rise and fall in or as if in waves; undulate. v. operating performance. In addition, UnumProvident's ancillary Subordinate; aiding. A legal proceeding that is not the primary dispute but which aids the judgment rendered in or the outcome of the main action. A descriptive term that denotes a legal claim, the existence of which is dependent upon or reasonably linked to a main claim. group life business, which has historically provided stability to its overall operating earnings, has begun to show weakness as evidenced by the organization's 2001 second quarter results. The group life market is currently very competitive, particularly in the larger case market. Three of the primary insurance members in the group, Unum Life of America, Paul Revere Revere, city (1990 pop. 42,786), Suffolk co., E Mass., a residential suburb of Boston, on Massachusetts Bay; settled c.1630, set off from Chelsea and named for Paul Revere 1871, inc. as a city 1914. Life and Provident Life and Accident, have large blocks of individual disability income business which were written prior to the mid-1990s. During that period, the products sold by all individual disability income writers were primarily non-cancelable, "own-occ" policies designed with very rich benefits. In the mid-1990s, the claims experience on all those products deteriorated noticeably. As a result, all individual disability income writers redesigned their product offerings to combat the adverse claim trends. While UnumProvident's current generation of products is meeting its profit expectations, the previously written individual disability income products continue to have lower profit margins. Therefore, due to the significant size of the inforce block, this older business will continue to hinder hin·der 1 v. hin·dered, hin·der·ing, hin·ders v.tr. 1. To be or get in the way of. 2. To obstruct or delay the progress of. v.intr. the group's overall operating earnings performance for many years to come. For the first year following the merger, the organization experienced a dramatic decline in new business activity. While the level of competition has recently subsided somewhat in the group disability income market -- which has enabled the organization to expand its business again beginning in the third quarter of 2000 -- A.M. Best believes that there will continue to be some competitors which may be aggressive in their pricing strategy. The current ultra-competitive group life marketplace may also add pressure to UnumProvident's pricing discipline as it looks to meet its overall premium growth targets, while at the same time slowing premium growth in that product line. In addition, the slowing U.S. economy could also negatively impact the claims experience on disability income business. While UnumProvident has not experienced an impact on its paid claims from the economic slowdown For articles with similar titles, see Slow Down (disambiguation). A slowdown is an industrial action in which employees perform their duties but seek to reduce productivity or efficiency in their performance of these duties. to date, A.M. Best believes that both the individual and group disability markets by themselves are not Superior today, and therefore any organization that is so highly dependent on those products -- like UnumProvident -- cannot attain a Superior rating under current market conditions. In order to fund reserve strengthening and a number of substantial charges related to the merger, UnumProvident increased its leverage position. While the organization has made progress in reducing its debt-to-capital ratio at 29% at mid-year 2001, the ratio is still above the level UnumProvident has targeted for itself going forward. Concurrently, the organization's fixed charge coverage has declined in recent years. In early 2001, UnumProvident refinanced a portion of its short-term debt Short-term debt Debt obligations, recorded as current liabilities, requiring payment within the year. and replaced it with 10-year senior notes. While A.M. Best views UnumProvident's cash flows and its ability to generate earnings as sufficient at the current ratings, dividends from its subsidiaries will still be required to service its outstanding debt. The group's rating assignment does acknowledge the company's leadership position in the individual and group disability income market, as well as its significant presence in the group life, payroll deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. and long-term care long-term care (LTC), n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. fields. UnumProvident has recently made numerous improvements, particularly with regards to strengthening the capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. level in its primary insurance companies, realigning invested asset portfolios and implementing better checks and balances within the organization. In addition, A.M. Best notes the strength of the organization's management team, which has a proven track record. While Colonial Life & Accident, the organization's primary company for selling voluntary products at the worksite, is run separately from the rest of UnumProvident, its rating is also being lowered to A (Excellent) due to the leveraged position of the parent holding company, the large amount of dividends which continue to be paid out of the entity and the organization's overall reliance on its disability income business. UnumProvident Corp. is a holding company whose subsidiaries offer a comprehensive, integrated portfolio of products and services backed by industry-leading return-to-work resources and disability expertise. UnumProvident is the world leader in protecting income and lifestyles through its comprehensive offering of group, individual and voluntary benefits products and services. As of June 30, 2001, UnumProvident reported consolidated assets of $40.9 billion and shareholders equity of $5.8 billion. The group financial strength rating of the following UnumProvident companies has been downgraded to A (Excellent) from A+ (Superior): -- Colonial Life & Accident Insurance Co. -- First Unum Life Insurance Co. -- Provident Life and Accident Insurance Co. -- Provident Life and Casualty Insurance Co. -- The Paul Revere Life Insurance Co. -- The Paul Revere Variable Annuity Insurance Co. -- Unum Life Insurance Company of America In addition, UnumProvident's existing senior debt, junior subordinated debt Subordinated Debt A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". , and capital securities have been assigned initial ratings as follows: UnumProvident Corporation-- -- "a-" rating on $575 million 7.625% senior unsecured notes, due March 2011 -- "a-" rating on $250 million 6.75% senior unsecured notes, due December 2028 -- "a-" rating on $200 million 7.25% senior unsecured notes, due March 2028 -- "a-" rating on $200 million 7.0% senior unsecured notes, due July 2018 -- "a-" rating on $200 million 6.375% senior unsecured notes, due July 2005 -- "a-" rating on medium-term senior unsecured notes @ 5.9% to 7.5%, due 2002 to 2028 -- "bbb+" rating on $172.5 million 8.8% junior subordinated Monthly Income Debt Securities (MIDS MIDS Multifunctional Information Distribution System MIDS Matrix Information and Directory Services (USA) MIDS Multifunction Information Distribution System MIDS Municipal Infrastructure Data Standard ), due May 2025 -- AMB-2 commercial paper rating Provident Financing Trust I-- -- "bbb+" rating on $300 million 7.405% capital securities, backed by junior subordinated deferrable interest debentures, due March 2038 (Capital securities are fully and unconditionally guaranteed Unconditionally Guaranteed is the eighth LP by Captain Beefheart & the Magic Band, originally released in 1974. Upon release it was criticised for being too commercial, however it failed to give Beefheart any real chart success and peaked at #192 on the Billboard by UnumProvident Corp.) The following indicative ratings are assigned to debt securities available under shelf registration: UnumProvident Corp.-- -- "a-" senior debt rating -- "bbb+" subordinated debt rating -- "bbb" preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. rating UnumProvident Financing Trust II and III-- -- "bbb+" preferred securities rating 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. |
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