Following favorable fourth quarter earnings, the rating agency Fitch upgraded the employee benefits and disability insurance provider Unum Group’s (UNM) senior debt rating to “BBB” from “BBB-.” Fitch also moved up the group’s issuer default rating to “BBB+” from “BBB” and raised the insurer financial strength ratings of Unum Group’s domestic operating subsidiaries to “A” from “A-.” All the ratings carry a stable outlook.
The rating agency acknowledges Unum’s favorable operating performance despite the difficult economic environment.
For the fourth quarter of 2009, Unum Group reported earnings of 66 cents per share, up from 63 cents in the prior-year quarter. The operating earnings of its core operations increased 10%, driven in large part by an 11% increase in operating results in Unum U.S., backed by a solid performance by Unum U.K. and Colonial Life.
Though the soft economy and ongoing high levels of unemployment continue to put pressure on the top line, the company’s risk experience across all of its businesses has remained generally stable. This can be attributed to a disciplined approach in pricing and underwriting.
Fitch also takes into consideration Unum’s capital adequacy. Its risk-based capital ratio at the end of the year stood at 382%. Management expects the ratio to be somewhere between 375% and 400% in 2010. With $915 million in cash and a leverage of 20.5%, the company stands solid from a financial flexibility point, with no debt maturing in 2010 and a small contribution to pension underfunding of $77 million.
Net realized after-tax investment losses related to sales and write-offs of investments were $41.6 million in the fourth quarter of 2009 compared with $47.5 million in the year-ago quarter. Going forward, net realized investment losses are expected to improve as unrealized losses on credits on the company’s watch list have dropped 85%.
However, Unum Group’s premium income remains under pressure across all of its businesses as employers are reluctant to add new benefits in this environment and in many cases are reducing employment levels.
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