AM Best Revises Outlooks to Stable for Unum Group and Its Core U.S. Life/Health Subsidiaries

Rhea-AI Summary

AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating (FSR) of A (Excellent) and Long-Term Issuer Credit Ratings (Long-Term ICR) of 'a' (Excellent) for Unum Insurance Group's subsidiaries. The FSR for Starmount Life Insurance Company was upgraded to A (Excellent). The ratings reflect strong balance sheet strength and operating performance. Despite experiencing increased claims due to COVID-19, Unum's profitability remains strong. The company is expected to see a gradual return to historical profitability levels as the pandemic subsides.

Positive

• AM Best upgraded Starmount Life Insurance Company’s FSR to A (Excellent) from A- (Excellent).
• The outlook for Unum's ratings was revised to stable from negative, indicating improved financial stability.
• Strong balance sheet and operating performance were highlighted, reflecting the company's resilience.

Negative

• COVID-19 increased claims in group life and accidental death businesses, affecting profitability.
• $2.1 billion premium deficiency reserve will impact financial results over the next seven years.

AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” (Excellent) for the existing members of Unum Insurance Group. Concurrently, AM Best has upgraded the FSR to A (Excellent) from A- (Excellent) and the Long-Term ICR to “a” (Excellent) from “a-” (Excellent) of Starmount Life Insurance Company (Starmount) (Portland, ME). Starmount is a newly added member to the Unum Insurance Group. The outlook of these Credit Ratings (ratings) is stable. These companies are the core U.S. life/health insurance subsidiaries of Unum Group (Unum) (headquartered in Chattanooga, TN) [NYSE: UNM]. In addition, AM Best has revised the outlook to stable from negative and affirmed the Long-Term ICR of “bbb” (Good) and the Long-Term Issue Credit Ratings (Long-Term IR) of Unum. (See below for a complete listing of the life/health subsidiaries and Long-Term IRs.)

AM Best has also affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of Unum Insurance Company (Unum Insurance) (Portland, ME). The outlook of these ratings is stable.

The ratings of the core U.S. life/health insurance subsidiaries of Unum reflect their balance sheet strength, which AM Best assesses as strong, as well as their strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).

The revision of the outlook to stable from negative reflects an easing of balance sheet pressure driven by COVID-19 related economic pressures. Asset valuation declines sustained during the first quarter of 2020 recovered over the course of the year and the potential for substantial deferred acquisition cost write-offs never materialized. Additionally, Unum continues to experience favorable profitability, which is expected to continue into the medium term. The favorable earnings trend somewhat offsets the $2.1 billion premium deficiency reserve Unum will recognize over the next seven years for its closed long-term care block of business. The first charge of $229 million is reflected in 2020 results.

Unum’s strong balance sheet strength historically has been supported through the retention of strong operating earnings and the favorable performance of its investment portfolio. Both profitability and premium growth moderated in 2020 as COVID-19 drove increased claims in the company’s group life and accidental death and dismemberment businesses, and COVID-19 related economic restrictions limited new business sales. Net premiums in 2020 were also unfavorably impacted by the one-time effect of Unum reinsuring its closed individual disability block. However, despite moderation from historical levels, profitability remains strong, and AM Best expects it to return to historical levels as the impacts of COVID-19 subside. Investment income, although favorable, has shown incremental declines due to the persistent low interest rate environment, a trend that is expected to continue as interest rates are at record lows.

AM Best notes the company continues to have exposure to below investment grade bonds and commercial mortgage loans, as well as a large portion of NAIC Class 2 bonds. Below investment grade fixed income securities represent 87% of capital and surplus and approximately one half of fixed income securities are NAIC 2-rated. Additionally, Unum has a large portfolio of commercial mortgage loans, totaling $2.4 billion, or 61% of capital and surplus. However, these assets performed well during 2020 with very few credit losses both in absolute terms and relative to industry benchmarks.

The insurance operation’s liquidity is mainly supported by favorable operating cash flows. Additional financial flexibility is derived from holding company cash and investments, which totaled $1.7 billion at March 31, 2021, a $600 million revolving credit facility and access to Federal Home Loan Bank borrowings. Unum has manageable financial leverage of approximately 24%, including its new 30-year $600 million senior unsecured note issued to replace the five-year $500 million note issued in 2020. The 2021 issue will extend the debt maturity schedule with little additional interest expense. Reported interest coverage was weak at -0.2 times in 2020, but was distorted by the reinsurance of the company’s closed disability block to a subsidiary of Global Atlantic. Adjusting for this transaction, interest coverage was adequate at 6.7 times for year-end 2020.

Unum continues to maintain good market share in its core business lines. The company has a large nationwide distribution network to support new business sales. Revenue and earnings are well-diversified across its employee benefits, voluntary and supplemental product portfolios. Unum has a mature ERM program that is incorporated into capital management, business planning and operations.

The ratings of Unum Insurance reflect its balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and appropriate ERM. Unum Insurance has shown good premium growth from new product offerings over the past three years.

The FSR of A (Excellent) and the Long-Term ICRs of “a” (Excellent) have been affirmed with stable outlooks of the following U.S. life/health subsidiaries of Unum Group:

• Unum Life Insurance Company of America
• Provident Life and Accident Insurance Company
• The Paul Revere Life Insurance Company
• Colonial Life & Accident Insurance Company
• First Unum Life Insurance Company
• Provident Life and Casualty Insurance Company

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

Unum Group—
-- “bbb” (Good) on $600 million 4.125% senior unsecured bonds, due 2051

The following Long-Term IRs have been affirmed with stable outlooks:

Unum Group—
-- “bbb” (Good) on $350 million 4.00% senior unsecured notes, due 2024
-- “bbb” (Good) on $275 million 3.875% senior unsecured notes, due 2025
-- “bbb” (Good) on $500 million 4.50% senior unsecured notes, due 2025
-- “bbb” (Good) on $250 million 6.75% senior unsecured notes, due 2028
-- “bbb” (Good) on $200 million 7.25% senior unsecured notes, due 2028
-- “bbb” (Good) on $400 million 4.00% senior unsecured notes, due 2029
-- “bbb” (Good) on $250 million 7.375% senior unsecured notes, due 2032
-- “bbb” (Good) on $250 million 5.75% senior unsecured notes, due 2042
-- “bbb” (Good) on $250 million 5.75% senior unsecured notes, due 2042
-- “bbb” (Good) on $450 million 4.50% senior unsecured notes, due 2049
-- “bb+” (Good) on $300 million 6.25% junior subordinated notes, due 2058

Provident Financing Trust I—
-- “bb+” (Fair) on $300 million 7.405% capital securities, due 2038

The following indicative Long-Term IRs under the shelf registration have been affirmed with stable outlooks:

Unum Group—
-- “bbb” (Good) on senior unsecured
-- “bbb-” (Good) on subordinated
-- “bb+” (Fair) on preferred stock

Unum Group Financing Trust I and II—
-- “bb+” (Fair) on preferred securities

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2021 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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FAQ

What did AM Best announce about Unum Group's financial ratings?

AM Best revised the outlook for Unum Group from negative to stable and affirmed its A (Excellent) FSR.

How did COVID-19 affect Unum's financial performance?

COVID-19 increased claims in certain business lines and affected new business sales, moderating profitability.

What is the significance of the premium deficiency reserve for Unum?

Unum will recognize a $2.1 billion premium deficiency reserve over seven years, impacting future financial results.

What is the current financial outlook for Unum Group?

The financial outlook is stable, with expectations for profitability to return to historical levels post-COVID.