This action is in response to UnumProvident's recent announcement that the plans to bolster its statutory capital position within certain of its insurance subsidiaries have been delayed by a periodic review conducted by the Securities and Exchange Commission (SEC) regarding its investment disclosures and the timing and amount of other-than-temporary losses recorded on below-investment-grade securities.
During 2002, UnumProvident's insurance subsidiaries recorded a significant amount of realized capital losses, causing the organization's risk-adjusted capital position to fall below the level expected for its current financial strength rating. Although UnumProvident filed a shelf registration in November 2002, it has not been able to activate it due to the SEC review.
While A.M. Best believes UnumProvident has the resources and ability to improve its capital position, the delay brings with it some uncertainties.
Of equal concern is UnumProvident's continued high exposure to the current difficult economic and investment environments. With the majority of its premium income and operating gains originating from disability income products, combined with its large amount of below- investment-grade corporate bond holdings, UnumProvident has been more negatively impacted by the extended weak economy than many insurers.
In addition, the organization has recently been subject to bad press surrounding its disability income claim practices. A.M. Best believes that until the U.S. economy shows signs of strengthening, UnumProvident is likely to continue to struggle to meet its profitability goals.
The ratings will remain under review until A.M. Best meets with UnumProvident's management to discuss its capital plan and fully analyze the organization's year-end statutory results prior to a decision being made on whether to lower the current ratings.
The following debt ratings have placed under review with negative implications:
UnumProvident Corp. --
-- "bbb+" senior debt
-- "bbb" subordinated debt
-- "bbb" trust preferred
-- "bbb-" preferred stock
-- "AMB-2" commercial paper
Additionally, the financial strength ratings of A (Excellent) for the following subsidiaries of UnumProvident Corp. have been placed under review with negative implications:
-- Unum Life Insurance Company of America
-- Provident Life and Accident Insurance Co
-- Paul Revere Life Insurance Company
-- Colonial Life & Accident Insurance Co
-- First Unum Life Insurance Company
-- Provident Life and Casualty Insurance Co
-- Paul Revere Variable Annuity Ins Co
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.