A.M. Best Reiterates Unum Ratings

A.M. Best Co. reiterated the issuer credit rating (ICR) of “bbb” of Unum Group (UNM - Analyst Report) and its present debt securities. Alongside the rating agency reiterated the financial strength rating (FSR) of “A” (Excellent) and ICR of “a” of the core U.S. life and health insurance subsidiaries of Unum Group. All the ratings carry a stable outlook.

The subsidiaries of Unum which received the FSR and ICR rating affirmations are– 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 and Provident Life and Casualty Insurance Company.

The rating affirmations came on the back of the company’s sturdy fundamentals which include its consolidated risk-adjusted capitalization capacity, well spread sources to generate strong earnings and superior operating performance. Amid the precarious economic climate of low interest rates, Unum has managed to deliver premium growth in most of its core markets, largely fuelled by its U.S. segment.

Other positives like stable earnings, high returns, and focus on underwriting discipline coupled with controlled expenses have also impacted the ratings.

Unum U.S., which occupies an important position in the group disability market exhibited stable results compared to other industry leaders in 2012. Although weak results in Unum’s U.K. and Colonial segments were a partial offset, the ratings take into account the overall performance of the company and persistency within its segments.

With Unum’s debt-to-capital ratio of 25%, strong interest coverage and $800 million of holding company cash and marketable securities, the credit rating agency also considers the company to be financially strong and flexible.

However, A.M. Best expects the soft U.S. economy and high unemployment levels to weigh on the sales figures of the company. Moreover, the ratings agency remains cautious about the operating earnings in the upcoming period owing to the lower interest environment that may affect new money yields and product prices.

A.M Best stated that the ratings on Unum might be revised downward owing to considerable statutory reserve charges, continued periods of higher than expected claims incidence or a substantial decline in operating performance or risk-adjusted capitalization relative to its expectations.

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining the creditworthiness in the market. We believe that the company’s present score with the credit rating agencies will help it write more business going forward.

Last month, A.M Best affirmed the ICR of Assurant Inc. (AIZ - Analyst Report) at “bbb” following a periodic review. It also affirmed the ICR and FSR of the Property and Casualty and Life and Health subsidiaries of the company. All the ratings carried a stable outlook.

Unum Group currently carries a Zacks Rank #4 (Sell). Among others from the industry, Employers Holdings (EIG - Snapshot Report) and Travelers Companies (TRV - Analyst Report) carry a favorable Zacks Rank #2 (Buy) and are worth noting.