Standard & Poor's Ratings Services said Thursday that it raised its counterparty credit and senior unsecured debt rating on Unum Group (UNM) to 'BBB-' from 'BB+'. At the same time, Standard & Poor's raised its counterparty credit and financial strength ratings on Unum Group's insurance subsidiaries to 'A-' from 'BBB+'.
The outlook on all companies is stable.
"The upgrades reflect the group's maintenance of its dominant market position, improved insurance risk profile, operating profitability, enhanced investments quality, and stronger capitalization through statutory earnings," said Standard & Poor's credit analyst Shellie Stoddard. "Offsetting these positive factors are somewhat slower growth rates across all operating segments, risks that economic recessionary pressures will increase disability claims, and the historical volatility that Unum Group has experienced in its disability products."
The success of Unum's turnaround strategy since 2003 is apparent in its improved risk profile and increased financial flexibility. Management has focused on lowering the risk in the company's investments and businesses, while growing key strategic businesses such as life, supplemental, and voluntary insurance products, and increasing the profitability of its U.S. disability operations. At the same time, the company has de-leveraged its balance sheet and securitized two blocks of older disability business to reduce economic capital requirements.
The stable outlook reflects our expectation that Unum will maintain financial discipline and continue to focus on sales growth in the more profitable, smaller-case-size business. New annualized premiums for UNM are expected to decline by as much as 5% in 2008 because of competition faced in all segments including the Colonial and U.K. operations. We do not expect the slower economy will hurt overall claims experience because of the company's increased diversification of insurance exposure. Pretax operating income is expected to grow to $1.2 billion by the end of 2008. UNM is expected to maintain a healthier balance sheet with higher quality assets, better capitalization, and lower debt, compared with the 2004-2006 period. For 2008, GAAP interest coverage is expected to increase to more than 10x, while adjusted debt to total capital is expected to remain less than 25%.
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Primary Credit Analyst: Shellie Stoddard, New York (1) 212-438-7244;
Secondary Credit Analyst: James Sung, New York (1) 212-438-2115;
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In another Unum matter, a Federal Court jury in Las Vegas ordered Paul Revere Life Insurance Company to pay $24 million and Unum to pay $36 million on allegations of improper claims handling.
There was a total punitive award of $60 million against the insurors.
Officials said the award was six times a previous award that had been appealed by the two firms following a trial in 2004.
In the 2004 trial, the jury awarded $1.6 million in compensatory damages and $10 million in punitive damages and the case was appealed.