A.M. Best Assigns Debt Rating to Unum Group’s Senior Notes

A.M. Best has assigned a debt rating of “bbb” to the $350 million 4.0% 10-year senior unsecured notes recently issued by Unum Group (Unum) (headquartered in Chattanooga, TN) (NYSE: UNM). The outlook assigned to the rating is stable. All other ratings of Unum and its subsidiaries remain unchanged.

The new issuance is a drawdown from Unum’s existing shelf. Proceeds from the issuance are expected to be used for general corporate purposes, which may include repayment of all or part of Unum’s 6.85% senior notes due 2015 (approximately $297 million principal outstanding). With this issuance and warehousing of the proceeds, Unum’s debt-to-capital ratio in the interim will rise to approximately 25%, which remains in line with A.M. Best’s guidelines for the rating level. Historically, Unum’s financial leverage has been conservative compared to industry peers, and interest coverage remains strong at approximately nine times.

Unum’s ratings recognize its strong franchise in the disability and voluntary markets, solid capitalization and diversified earnings sources. The company continues to generate strong and consistent revenues from stable premium and net investment income levels. Capital levels at Unum’s insurance operating companies also are strong. In addition, the holding company demonstrates good financial flexibility with over $500 million of cash and marketable securities at year-end 2013.

Partially offsetting these positive rating factors was the modest decline in net income to $858 million in 2013, from $894 million in 2012, driven by a one-time reserve increase related to unclaimed death benefits totaling $62 million (after-tax) and a reserve decrease of $56 million (after-tax) related to a group life waiver of premium benefits. However, A.M. Best notes that each of Unum’s business segments generates double-digit returns on equity. Ongoing competition in core markets has moderated sales growth, and Unum’s closed blocks of business continue to experience margin pressures from pricing issues and the persistent low rate environment.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

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