A.M. Best Affirms Credit Ratings of Unum Group and Its Core U.S. Subsidiaries

A.M. Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of the core U.S. life/health insurance subsidiaries of Unum Group (Unum) (headquartered in Chattanooga, TN) (NYSE:UNM). Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” of Unum Insurance Company (Unum Insurance) (Portland, ME) and Starmount Life Insurance Company (Starmount) (Baton Rouge, LA). Concurrently, A.M. Best has affirmed the Long-Term ICR of “bbb” and the Long-Term Issue Credit Ratings (Long-Term IR) of Unum. The outlook of these Credit Ratings (ratings) is stable. (See below for a complete listing of the companies and ratings.)

The ratings of the core U.S. subsidiaries of Unum reflect its balance sheet strength, which A.M. Best categorizes as strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management.

Unum has experienced favorable operating trends with very favorable profitability metrics over the past several years, despite the impact of the low interest rate environment and competitive market conditions. This is due primarily to Unum’s business mix and pricing discipline, which is evident in the steady loss ratios and good persistency over the past several years. Unum continues to maintain its leading market positions in several different markets and diverse distribution networks. In addition, Unum has made several acquisitions over the past few years including Starmount, a regional dental and vision insurance carrier, as well as two other international insurance carriers in the United Kingdom and Poland as part of its strategy to expand in international markets. Unum is utilizing Starmount as its dental and vision insurance platform and will distribute its products through Unum’s nationwide distribution network. Unum also has introduced several new insurance products including critical illness and stop-loss insurance, which also have broadened its product portfolio.

Partially offsetting these positive rating factors is the exposure to its significant closed block of long-term care policies, which historically has experienced margin pressures from pricing issues and the persistent low rate environment, as well as Unum’s above-average exposure to below investment grade bonds relative to the industry average. Unum’s exposure to below investment grade bonds has increased modestly over the past few years to approximately 11% of its fixed-income portfolio and 90% of capital and surplus. However, A.M. Best notes that Unum’s investment portfolio historically has provided a stable source of income due to manageable levels of impairments. In addition, there is only a modest exposure to real estate and other less-liquid alternative investments. While tax reform was a boost to overall earnings, there was a negative impact to capitalization due to the reduction in deferred tax assets. However, financial leverage has improved over the past year to approximately 22%, and interest coverage remains strong. In addition, Unum held cash and short-term investments of more than three times its annual interest expense at the holding company at Dec. 31, 2017, resulting in excellent financial flexibility.

The FSR of A (Excellent) and the Long-Term ICRs of “a” have been affirmed with a stable outlook for the following core U.S. subsidiaries of Unum Group:

• 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
• Provident Life and Casualty Insurance Company

The FSR of A- (Excellent) and the Long-Term ICRs of “a-” have been affirmed with a stable outlook for the following U.S. subsidiaries of Unum Group:

• Unum Insurance Company
• Starmount Life Insurance Company

The Long-Term ICR of “bbb” has been affirmed with a stable outlook for Unum Group.

The following Long-Term IRs have been affirmed with a stable outlook:

Unum Group—
-- “bbb” on $200 million 7.00% senior unsecured notes, due 2018
-- “bbb” on $400 million 5.625% senior unsecured notes, due 2020
-- “bbb” on $350 million 3.0% senior unsecured notes, due 2021
-- “bbb” on $250 million 6.75% senior unsecured notes, due 2028
-- “bbb” on $200 million 7.25% senior unsecured notes, due 2028
-- “bbb” on $250 million 7.375% senior unsecured notes, due 2032
-- “bbb” on $250 million 5.75% senior unsecured notes, due 2042
-- “bbb” on $350 million 4.00% senior unsecured notes, due 2024
-- “bbb” on $275 million 3.875% senior unsecured notes, due 2025
-- “bbb” on $250 million 5.75% senior unsecured notes, due 2042

Provident Financing Trust I—
-- “bb+” on $300 million 7.405% capital securities, due 2038

The following indicative Long-Term IRs under the shelf registration have been affirmed with a stable outlook:

Unum Group—
-- “bbb” on senior unsecured
-- “bbb-” on subordinated
-- “bb+” on preferred stock

Unum Group Financing Trust I and II—
-- “bb+” on preferred securities

This press release relates to Credit Ratings that have been published on A.M. 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 A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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