A.M. Best Comments on UnumProvident's Multi-State Market Conduct Review Settlement

Business Wire, Nov 18, 2004

OLDWICK, N.J. -- A.M. Best Co. has completed its initial analysis of the recently announced settlement by UnumProvident Corp. (NYSE:UNM) (Chattanooga, TN), of the multi-state market conduct exam that has been underway over the past year.

A.M. Best will not be taking a rating action in response to the announcement of UnumProvident's resolution of the exam and the corresponding charge, which is estimated to be $127 million (pre-tax). While A.M. Best is not taking a rating action, the outlook on UnumProvident's ratings remains negative.

A.M. Best remains concerned with the ongoing announcement of one-time charges; however, after analyzing the impact of the upcoming fourth quarter charge, A.M. Best remains comfortable with UnumProvident's GAAP and statutory capitalization and the current level of earnings.

A.M. Best notes that while all 50 states, the District of Columbia, the New York Attorney General and the Department of Labor participated in the multi-state market conduct exam, the settlement will need approval from at least two-thirds of the states to ratify. A few states, including California, have also conducted separate market conduct exams recently but have not ruled on their findings. Jurisdictions that choose not to approve the multi-state settlement can individually impose additional fines or request other costly remedies in addition to this charge.

Because of these factors, an uncertainty is that ultimate remediation expenses from the multi-state exam can exceed anticipated levels in UnumProvident's estimates if additional fines are levied by other regulators.

A.M. Best will be closely monitoring UnumProvident's operations as to the impact of the multi-state settlement, as well as the operating results on its core group long-term disability business. The maintenance of UnumProvident's current ratings reflects A.M. Best's expectation that UnumProvident will comply with several key financial and operational measures:

--  The maintenance of a Best Capital Adequacy Ratio (BCAR) of at
        least 150% on a consolidated basis, as well as for the primary
        operating companies.

    --  The maintenance of an NAIC Risk-based Capital (RBC) of at
        least 250%.

    --  No share repurchases over the next two-year period (through
        year-end 2006).

    --  Operating earnings (pre-charge) will be within the company's
        estimates of $450 and $500 million on a GAAP basis in 2004 and
        2005, respectively, and statutory operating earnings will be
        at least $375 million for both periods as well.

    --  Debt-to-capital ratio cannot exceed its present level, and
        A.M. Best would expect this ratio to trend downward with
        future equity growth through retained earnings and upcoming
        debt paid down. Financial leverage is approximately 30%,
        adjusted for UnumProvident's convertible debentures' equity
        characteristics.

    --  Cash at the holding company will be maintained to cover
        approximately six months of interest service and stockholder
        dividends. While a portion of the current holding company's
        cash position is intended for the pay down of debt in 2005, it
        is expected that UnumProvident will build to a six-month cash
        position over a reasonable period of time.

    --  Persistency of the company's core group long-term disability
        (LTD) business will not drop below 80%. A.M. Best will also be
        taking into consideration the quality of business lapsing and
        the resulting impact on UnumProvident's loss ratios.

    --  UnumProvident should not have any additional significant
        charges.

    --  Settlement expectations shall not exceed 120% of expected
        response rates, amount of claims reopened, size of claims
        payments and expenses associated with the payout.

A.M. Best will monitor developments of the multi-state resolution for any additional fines, other regulatory review or other potential unforeseen negative results. In addition, A.M. Best will monitor any possible actions from states that do not approve the settlement.

While non-compliance with any one of the above mentioned factors alone may not trigger a rating action, a significant deviation on any one and/or a number of these factors could result in ratings being downgraded.

On May 6, 2004, A.M. Best affirmed the financial strength ratings of A- (Excellent) and the senior debt rating of "bbb-" of UnumProvident's insurance subsidiaries. All of the group's ratings have a negative outlook.

For current Best's Ratings, independent data and analysis on more than 1,050 health companies and more than 130 HMO industry composites, please visit http://www.ambest.com/health/.> 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 http://www.ambest.com.