KEY RATING DRIVERS
The rating rationale includes the following: UNM's overall operating performance, which has remained strong despite continued adverse global economic conditions; conservative investment portfolio; solid capital and liquidity at both the insurance subsidiary and holding company levels; the company's leadership position in the U.S. employee benefits market; and increased diversification. Offsetting these positives are
The Stable Outlook reflects Fitch's belief that while UNM's premium growth and operating margins continue to be challenged by the weak economic environment and competitive market conditions, the company's overall profitability will continue to support the current rating. Operating margins in UNM's U.S. disability business have held up better than Fitch's expectations, and they have favorable relative to the company's peers. The company has been experiencing an improving trend in the benefit ratio of its core U.S. group disability income business over the past year and a half, which has helped support the company's overall profitability.
During 2013, UNM repurchased
UNM's financial leverage was 25% at
The key rating triggers that could lead to an upgrade include:
--Improved general economic conditions including a growth in employment, salaries and disposable income which enable 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 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
--U.S. risk-based capital ratio below 350% and financial leverage above 25%.
Fitch affirms the following ratings with a Stable Outlook:
--Issuer Default Rating (IDR) at 'BBB+';
--7.125% senior notes due
--7% senior notes due
--5.625% senior notes due
--4.00% senior notes due
--7.25% senior notes due
--6.75% senior notes due
--7.375% senior notes due
--5.75% senior notes due
Provident Financing Trust I
--7.405% junior subordinated capital securities at 'BB+'.
--6.85% senior notes due
--IFS at 'A'.
Additional information is available at 'www.fitchratings.com'
--'Insurance Rating Methodology' (
Insurance Rating Methodology
Source: Fitch Ratings
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