A.M. Best Revises Outlook to Stable for Unum Group.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of "a-" of Unum Group's (Unum) (Chattanooga, TN) (NYSE: UNM) insurance subsidiaries. A.M. Best also has affirmed the ICR of "bbb-" and all debt ratings of Unum. The outlook for all ratings has been revised to stable from negative. (See link below for a complete listing of the companies and ratings.)

The revised outlook reflects the positive trend in Unum's operating results--including its core U.S. Brokerage Group Income Protection segment, favorable capitalization and improved financial flexibility over the past few years. The quality of its investment portfolio also has become more conservative, further strengthening the organization. Additionally, Unum does not have any direct subprime mortgage or CDO exposure. Furthermore, Unum has recently completed its claim reassessment program with no additional charges. The company is now awaiting final sign off from regulators in charge of oversight of the program. Overall, the total cost of claim reassessment process far exceeded initial projections.

Over the past several years, Unum has considerably improved it risk-based capital level as it repositioned its book of business to rely less on the very competitive, large case market. At the same time, it repriced its U.S. Brokerage Group Income Protection book of business, which has been reporting higher loss ratios. Both moves were part of the organization's strategy to concentrate on profitability rather than market share. While Unum is no longer the largest writer of new group disability income business, it still has the largest inforce block in this product line and remains the most recognizable name in the disability income market. Unum received a boost from strong operating results from Unum Limited (its UK operations) and Colonial Life and Accident (voluntary benefits) while it took corrective actions in its U.S. Brokerage Group Income Protection and closed block Individual Income Protection segments.

While the recently completed multi-state claims reassessment process incurred significantly higher costs than were initially anticipated, Unum has more than offset the $666 million in (pre-tax) charges taken over the past three years with improved net income that has bolstered the organization's capital position. With its strengthened capital position, Unum also has been able to retire some of its outstanding debt early. Currently, Unum's debt-to-capital ratio is approximately 22%, noticeably lower than a few years ago.

The recently completed securitization transaction (Northwind) involving approximately 95% of Unum's low-margined, closed block, Individual Income Protection block will help improve its profitability returns going forward and enable it to reallocate capital within its organization. The organization has announced plans to reinitiate its stock buy-back program beginning in February 2008, with some of the proceeds that were generated from the Northwind securitization as well as excess capital, which has been accumulated over the past few years. A.M. Best is comfortable with the announced stock buy-back amounts and the level of liquidity, which will be maintained at the parent holding company.

Unum Limited is the leading provider in group risk market in the United Kingdom and has been one of the larger profit contributors to the group during recent years. A.M. Best believes Unum Limited's risk-adjusted capitalization will remain strong despite increased dividend payments.

While the rating outlook has been revised to stable, A.M. Best believes Unum, like all disability income writers, will be challenged near term with a weakening U.S. economy and a potential prolonged low interest rate environment. This combination would likely limit the company's earnings capacity and inhibit sales activity in parts of its business for a period of time. Additionally, given the numerous unexpected charges, which have been taken over the past five years by Unum, A.M. Best will need to see a period of more predictable results before any additional upward rating movement can be considered.

For a complete listing of Unum Group's FSRs, ICRs and debt ratings, please visit www.ambest.com/press/012901unum.pdf.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.