AM Best has upgraded the Long-Term Issuer Credit Ratings
(Long-Term ICRs) to “a+” (Excellent) from “a” (Excellent) and
affirmed the Financial Strength Rating (FSR) of A (Excellent) of
the members of Unum Insurance Group. The outlook of the Long-Term
ICRs has been revised to stable from positive, while the outlook of
the FSR is stable. These companies are the core U.S. life/health
(L/H) insurance subsidiaries of Unum Group (Unum) (headquartered in
Chattanooga, TN) [NYSE: UNM]. In addition, AM Best has upgraded the
Long-Term ICR to “bbb+” (Good) from “bbb” (Good) and the Long-Term
Issue Credit Ratings (Long-Term IRs) of Unum. The outlook of the
Long-Term ICR has been revised to stable from positive. (See below
for a complete listing of the L/H subsidiaries and the Long-Term
IRs.)
The Credit Ratings (ratings) reflect Unum’s balance sheet
strength, which AM Best assesses as strong, as well as its strong
operating performance, favorable business profile and appropriate
enterprise risk management (ERM).
The rating upgrades reflect Unum’s improved risk-adjusted
capitalization and financial flexibility observed over the
2020-2023 period, previously recognized in 2022 with the revision
of the Long-Term ICR outlooks to positive from stable, in
conjunction with stable asset quality, strong financial
flexibility, and enhanced liquidity. Improved risk-adjusted
capitalization, as measured by Best’s Capital Adequacy Ratio
(BCAR), was observed after Unum reinsured a large block of
individual disability reserves with a subsidiary of Global Atlantic
Financial Group. The transaction, which completed in 2021, reduced
outstanding reserves at the statutory group and materially improved
risk-adjusted capitalization at the statutory group. Financial
flexibility was improved through the issuance of $400 million of
unissued pre-capitalized securities in 2021 While dividends out of
the statutory entities to fully fund a long-term care (LTC) premium
deficiency reserve (PDR) are expected to moderate risk-adjusted
capital slightly, which remains above the company’s stated
long-term target levels. AM Best expects Unum to maintain
risk-adjusted capital, as measured by BCAR, at the very strong
level over the medium term. Liquidity and financial flexibility are
expected to remain elevated over the near term as Unum maintains
its balance of unissued pre-capitalized securities and ample cash
at the holding company. It also is expected that Unum will maintain
financial leverage below management communicated 30% maximum, and
likely closer to the year-end 2022 figure of 27%.
AM Best notes that Unum 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 57% of capital and surplus as of
year-end 2022, and approximately one half of fixed-income
securities are NAIC 2-rated. Additionally, Unum has a portfolio of
commercial mortgage loans, totaling $2.4 billion, or 64% of capital
and surplus. However, these assets performed well through the
COVID-19 pandemic with very few credit losses in absolute terms and
relative to industry benchmarks. These assets support a block of
longer-duration liabilities as part of an asset/liability matching
strategy.
Reserve adequacy for Unum’s closed block LTC business remains a
concern due to the complexity of reserve assumptions. However,
near-term operating results have been favorable, statutory reserves
have been increased through the funding of the PDR, and GAAP
reserves have remained stable. Unum has announced that it will
fully fund its LTC PDR in 2023, faster than the 2026 deadline
initially agreed to with the Maine regulator. After the PDR is
fully funded, statutory reserves will be materially higher than the
best estimate GAAP reserves, indicating statutory reserves should
be less sensitive to changes in assumptions prospectively.
Unum’s operating performance remains strong as sales accelerate
and profitability improves post-pandemic. Premium growth was
nominal in 2021 but accelerated through 2022 and the first half of
2023 as the sales environment improved post-pandemic. Higher
employment and wage inflation contributed to organic growth on
in-force blocks of business. Operating profitability continued to
improve in 2022 as lower mortality rates positively impacted the
life business and a strong labor market combined with internal
process improvements materially improved disability results.
Investment income continued to contribute positively to both
statutory and GAAP earnings in 2022. However, Interest rate driven
valuation declines in the fixed income portfolio of $7.0 billion
had a significant impact on GAAP equity through other comprehensive
income. This impact was only offset partially by $4.1 billion in
reserve and deferred acquisition cost adjustments. Unrealized
losses on fixed income securities did not materially impact
statutory earnings or capital. Results through the first half of
2023 are well ahead of 2022 for premium growth and operating
income. AM Best expects strong premium growth through the balance
of 2023 and for operating income to meet or exceed pre-pandemic
levels over the near term.
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 Long-Term ICRs have been upgraded to “a+” (Excellent) from
“a” (Excellent) and the FSR of A (Excellent) has been affirmed. The
outlook of the Long-Term ICRs has been revised to stable from
positive, while the FSR is stable for the following U.S. L/H
subsidiaries of Unum Group:
- Unum Life Insurance Company of America
- Unum Insurance Company
- 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
- Starmount Life Insurance Company
The following Long-Term IRs have been upgraded, with the
outlooks revised to stable from positive.
Unum Group— -- to “bbb+” (Good) from “bbb” (Good) on $350
million 4.00% senior unsecured notes, due 2024 -- to “bbb+” (Good)
from “bbb” (Good) on $275 million 3.875% senior unsecured notes,
due 2025 -- to “bbb+” (Good) from “bbb” (Good) on $500 million
4.50% senior unsecured notes, due 2025 -- to “bbb+” (Good) from
“bbb” (Good) on $250 million 6.75% senior unsecured notes, due 2028
-- to “bbb+” (Good) from “bbb” (Good) on $200 million 7.25% senior
unsecured notes, due 2028 -- to “bbb+” (Good) from “bbb” (Good) on
$400 million 4.00% senior unsecured notes, due 2029 -- to “bbb+”
(Good) from “bbb” (Good) on $250 million 7.375% senior unsecured
notes, due 2032 -- to “bbb+” (Good) from “bbb” (Good) on $250
million 5.75% senior unsecured notes, due 2042 -- to “bbb+” (Good)
from “bbb” (Good) on $250 million 5.75% senior unsecured notes, due
2042 -- to “bbb+” (Good) from “bbb” (Good) on $450 million 4.50%
senior unsecured notes, due 2049 -- to “bbb+” (Good) from “bbb”
(Good) on $600 million 4.125% senior unsecured bonds, due 2051 --
to “bbb-” (Good) from “bb+” (Fair) on $300 million 6.25% junior
subordinated notes, due 2058
Provident Financing Trust I— -- to “bbb-” (Good) from “bb+”
(Fair) on $300 million 7.405% capital securities, due 2038
The following indicative Long-Term IRs under the shelf
registration have been upgraded, with the outlooks revised to
stable from positive.
Unum Group— -- to “bbb+” (Good) from “bbb” (Good) on senior
unsecured -- to “bbb” (Good) from “bbb-” (Good) on subordinated --
to “bbb-” (Good) from “bb+” (Fair) on preferred stock
Unum Group Financing Trust I and II— -- to “bbb-” (Good) from
“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 use of Best’s Credit
Ratings, Best’s Performance Assessments, Best’s Preliminary Credit
Assessments and AM Best press releases, please view Guide to Proper
Use of Best’s Ratings & Assessments.
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,
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John McGlynn Senior Financial Analyst +1 908
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Associate Director +1 908 882 2080
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Director, Public Relations +1 908 882 2310
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