Fitch Affirms Unum's Ratings; Outlook Stable

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 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. The ratings also consider the impact of the low interest rate environment on UNM's ongoing businesses, competitive challenges in the company's core U.S. disability business, and modest improvement in the 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. Operating margins in UNM's U.S. disability business have held up well through challenging conditions in recent years, particularly in comparison to some of the company's peers. UNM has been experiencing an 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 its overall profitability.

UNM recently reported pretax operating earnings of $329 million for first quarter 2016, up approximately 2.3% from $321 million for first quarter 2015. For full year 2015, the company reported pretax operating earnings of $1.29 billion, up from $600 million in 2014, which included a fourth quarter 2014 reserve increase of $698 million related to the company's runoff long-term care (LTC) business. The reserve charge was largely driven by lower-than-expected interest rates, and also reflected the company's updated assumptions concerning emerging claims experience and progress on premium rate increases. While Fitch viewed the LTC reserve charge as a credit negative, the agency considers it manageable in relation to the company's earnings and capital. Adjusting for the LTC reserve charge, 2014 pretax operating earnings would have been $1.28 billion.

Fitch considers UNM's capitalization to be strong and financial leverage to be reasonable and within overall expectations for the company's ratings. Financial leverage stood at 25.6% at March 31, 2016, down modestly from 25.7% at yearend 2015. UNM reported consolidated risk-based capital of its U.S. insurance subsidiaries of approximately 390% at March 31, 2016, down modestly from 398% at yearend 2015, but within Fitch's expectations and 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 9.9x in 2015. Holding company liquidity, including an intermediate holding company, totalled $475 million at Dec. 31, 2015.

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 year ended Dec. 31, 2015, the company reported total revenue of $10.7 billion and total assets of $60.6 billion.

RATING SENSITIVITIES

The key rating triggers that could lead to an upgrade include:

--Improved general economic conditions including growth in employment, salaries and disposable income, which enables UNM to achieve its long-term target of 5% - 7% annual earnings growth on its core operations.

--GAAP earnings-based interest coverage over 12x and statutory maximum allowable dividend coverage of interest expense over 5x.

--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%, GAAP earnings-based interest coverage falling below 8x, and statutory maximum allowable dividend interest expense coverage falling below 3x.

--Any additional significant reserve strengthening charges in the near term.

--Holding company cash falls below management's target of approximately 1x fixed charges (interest expense plus common stock dividend), or roughly $327 million.

--U.S. risk-based capital ratio below 350% and 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+';

--7.125% senior notes due Sept. 30, 2016 at 'BBB';

--7.00% senior notes due July 15, 2018 at 'BBB';

--5.625% senior notes due Sept. 15, 2020 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'.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Insurance Rating Methodology (pub. 16 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003685

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003685

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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