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Fitch Affirms Unum's Ratings; Outlook Stable
December 23, 2016 / 4:53 PM / a year ago

Fitch Affirms Unum's Ratings; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, December 23 (Fitch) Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) of Unum Group (UNM) at 'BBB+'. Fitch has also affirmed the Insurer Financial Strength (IFS) ratings for all of UNM's domestic operating subsidiaries at 'A'. The Rating Outlook is Stable. A full list of ratings follows at the end of this release. KEY RATING DRIVERS The affirmation of UNM's ratings reflects the company's continued strong, stable operating performance in its core businesses, moderate investment risk, solid capital and liquidity at both the insurance subsidiary and holding company level, as well as the company's leadership position in the U.S. employee benefits market. UNM's ratings also reflect the impact of the ongoing low interest rate environment on the company's businesses, including legacy long-term care, competitive challenges in the company's core U.S. disability business, and continued modest improvement in the operating performance of its U.K. business. The Stable Outlook reflects Fitch's belief that while UNM's premium growth and operating margins continue to be challenged by the uncertain economic environment and competitive market conditions, the company's overall profitability has been strong and stable, and will continue to support the current rating for the foreseeable future. Operating margins in UNM's U.S. disability business have held up well through challenging economic conditions in recent years. UNM has been experiencing a generally improving trend in the benefit ratio of its core U.S. group disability income business over the past several years, which has helped support the company's overall profitability. UNM reported pretax operating earnings of $968 million for the first nine months of 2016, essentially flat from $972 million for the same period in 2015. Despite pressure from the ongoing difficult interest rate conditions and slow salary growth, the company has maintained attractive margins through pricing and claims and expense management. Fitch anticipates additional pressure on UNM's U.K. operations in the short- to intermediate-term driven by uncertainty around the effects of the U.K. vote in June 2016 to leave the European Union. Fitch considers UNM's capitalization to be strong and financial leverage to be reasonable and within overall expectations for the company's ratings. The company's Prism score of 'Strong' is consistent with the company's current 'A' IFS rating, as is the company's financial leverage of 27% at Sept. 30, 2016. UNM reported consolidated risk-based capital (RBC) of its U.S. insurance subsidiaries of approximately 398% at year-end 2015, and management anticipates consolidated RBC to be approximately 400% at year-end 2016, which is at the high end of management's near- to intermediate-term target of 375% - 400%. Fitch considers UNM's debt service capacity to be strong for the rating level with GAAP earnings-based interest coverage of 9x for the first nine months of in 2016. Holding company liquidity as represented by cash and marketable securities, including those held at an intermediate holding company, totalled $598 million at Sept. 30, 2016. Based in Chattanooga, TN, UNM is the largest provider of group disability income insurance in the U.S. and the U.K, and the largest provider of group life insurance in the U.S. For the first nine months of 2016, the company reported total revenue of $8.3 billion and total assets of $63.9 billion. RATING SENSITIVITIES The key rating triggers that could lead to an upgrade include: --Reduced exposure to legacy long-term care business with no deterioration in operating performance. --U.S. risk-based capital ratio above 400% and run-rate financial leverage below 20%. Key rating triggers that could lead to a downgrade include: --Deterioration in financial results that includes an increase in the U.S. group disability benefit ratio over 87%, ROE declining to a level below 9%, and statutory maximum allowable dividend interest expense coverage falling below 3x. --Holding company cash falls below management's target of approximately 1x fixed charges (interest expense plus common stock dividend). --U.S. risk-based capital ratio below 350%, Prism score below 'Strong' or financial leverage above 28%. FULL LIST OF RATING ACTIONS Fitch affirms the following ratings with a Stable Outlook: Unum Group Inc. --Long-Term IDR at 'BBB+'; --7.00% senior notes due July 15, 2018 at 'BBB'; --5.625% senior notes due Sept. 15, 2020 at 'BBB'; --3.00% senior notes due May 15, 2021 at 'BBB'; --4.00% senior notes due March 15, 2024 at 'BBB; --3.875% senior notes due Nov. 5, 2025 at 'BBB; --7.25% senior notes due March 15, 2028 at 'BBB'; --6.75% senior notes due Dec. 15, 2028 at 'BBB'; --7.375% senior notes due June 15, 2032 at 'BBB'; --5.75% senior notes due Aug. 15, 2042 at 'BBB'. Provident Financing Trust I --7.405% junior subordinated capital securities at 'BB+'. Unum Group members: Unum Life Insurance Company of America Provident Life & Accident Insurance Company Provident Life and Casualty Insurance Company The Paul Revere Life Insurance Company Unum Insurance Company First Unum Life Insurance Company Colonial Life & Accident Insurance Company --IFS at 'A'. Contact: Primary Analyst Bradley S. Ellis, CFA Director +1-312-368-2089 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Douglas L. Meyer, CFA Managing Director +1-312-368-2061 Committee Chairperson Martha M. Butler, CFA Senior Director +1 312-368-3191 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1017070 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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