A.M. Best Comments on UnumProvident's First Quarter Results

Business Wire, May 4, 2006

OLDWICK, N.J. -- A.M. Best Co. has commented that the financial strength, issuer credit and senior debt ratings on UnumProvident Corp. (Portland, ME) (NYSE: UNM) and its subsidiaries are unchanged by today's first quarter earnings announcement.

In the company's 2006 first quarter earnings release, UnumProvident reported lower earnings in the first quarter of 2006 primarily due to an $86.0 million before tax charge ($55.9 million after tax) related to its ongoing market conduct claim reassessment process. Additionally, the company continued to encounter sub par performance in its core U.S. brokerage group long-term income protection segment due to continued benefit operations issues and slightly elevated claim incidence in the first quarter. The remainder of UnumProvident's operations, however, performed generally at, or above plan, for the quarter.

With some credible claim reassessment data now available, UnumProvident re-examined the assumptions and reserves established for the multi-state and California market conduct settlements. Based on this information, the company has raised its estimate, which had initially totaled approximately $202 million, pre-tax ($127 million for the multi-state in November 2004 and $75 million for the California settlement in October 2005).

A.M. Best examined the revised assumptions and the reserves established for the market conduct settlements. Given the current information, A.M. Best believes this additional charge is reasonable at this time. With the organization's strengthened capital position, the latest charge does not endanger the company from attaining the capitalization targets A.M. Best laid out for UnumProvident back in November 2004. However, it is important to note that there is still a sizeable amount of claims that need to be reassessed to ultimately determine the total cost to UnumProvident. It will be months before this is known.

While claim recovery rates did show signs of improvement in the first quarter, they are still below the company's targeted levels. Consequently, UnumProvident reported another high quarterly benefits ratio in its core U.S. brokerage group long-term income protection segment. A.M. Best believes that it is important for the company to generate better returns in this key segment going forward. However, A.M. Best feels it will take at least a few quarters before the benefit operations issues are completely resolved.

A.M. Best was alerted to the earnings shortfall ahead of time, and a thorough discussion of these highlighted items occurred with UnumProvident's management. While A.M. Best was disappointed with the lower than projected results for the quarter, it believes these items alone do not warrant any rating action at this time. However, by taking the additional claims reassessment charge, UnumProvident will surpass the 120% of the original multi-state market conduct settlement charge setup back in November 2004, which was part of the many key financial and operational measures established by A.M. Best for maintenance of UnumProvident's current ratings. As was stated before, while non-compliance of any one of the factors alone may not trigger a rating action, a significant deviation on any one and/or number of the factors would result in the ratings being downgraded.

A.M. Best is in the midst of its full annual rating review of the UnumProvident organization. Further analysis of UnumProvident's entire operations will be taking place over the next several weeks before A.M. Best concludes on the ratings. In the meantime, the A- (Excellent) financial strength rating, "a-" issuer credit rating and "bbb-" senior debt rating on UnumProvident are unchanged. The outlook on all of UnumProvident's ratings remains negative.

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.