Unum 2006 Annual Report Download - page 110

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services and related functions and software maintenance agreements. The aggregate obligation remaining under
these agreements was $16.3 million at December 31, 2006.
Ratings
A.M. Best Company (AM Best), Fitch Ratings (Fitch), Moody’s Investors Service (Moody’s), and Standard &
Poor’s Corporation (S&P) are among the third parties that rate our senior debt and the financial strength of our
principal U.S. insurance subsidiaries. Financial strength ratings are based primarily on U.S. statutory financial
information for the individual U.S. domiciled insurance companies. These ratings reflect each rating agency’s view
of the overall financial strength (capital levels, earnings, growth, investments, business mix, operating performance,
and market position) of the insuring entity and its ability to meet its obligations to policyholders. Debt ratings
represent the opinions of the rating agencies specific to an issuer’s ability to repay its debt and are based primarily
on consolidated financial information prepared using GAAP. Both financial strength ratings and debt ratings
incorporate both quantitative and qualitative analyses by rating agencies and are routinely evaluated and updated on
an ongoing basis.
We compete based in part on the financial strength ratings provided by rating agencies. A downgrade of our
financial strength ratings can be expected to adversely affect us. A downgrade of the financial strength ratings
could, among other things, adversely affect our relationships with distributors of our products and services and
retention of our sales force, negatively impact persistency and new sales, particularly large case group sales and
individual sales, and generally adversely affect our ability to compete. Downgrades in our debt ratings can be
expected to adversely affect our cost of capital or our ability to raise additional capital.
The table below reflects our senior debt ratings and the financial strength ratings for our U.S. domiciled insurance
company subsidiaries as of the date of this filing.
AM Best Fitch Moody’s S&P
Senior Debt Ratings bbb- (Good) BBB- (Good) Ba1 (Speculative) BB+ (Speculative)
Financial Strength Ratings
Provident Life & Accident A- (Excellent) A- (Strong) Baa1 (Adequate) BBB+ (Good)
Provident Life & Casualty A- (Excellent) Not Rated Not Rated Not Rated
Unum Life of America A- (Excellent) A- (Strong) Baa1 (Adequate) BBB+ (Good)
First Unum Life A- (Excellent) A- (Strong) Baa1 (Adequate) BBB+ (Good)
Colonial Life & Accident A- (Excellent) A- (Strong) Baa1 (Adequate) BBB+ (Good)
Paul Revere Life A- (Excellent) A- (Strong) Baa1 (Adequate) BBB+ (Good)
Paul Revere Variable A- (Excellent) A- (Strong) Baa1 (Adequate) BBB+ (Good)
We maintain an ongoing dialogue with these rating agencies to inform them of progress we are making regarding
our strategic objectives and financial plans, as well as other pertinent issues. We hold regular meetings, including an
annual review meeting. We held our annual review with each of the rating agencies during the second quarter of
2006. Subsequent to each of our meetings, each agency issued a statement on our earnings and outlook.
• On May 23, 2006, Moody’s reaffirmed our credit ratings and financial strength ratings, and changed the
outlook on the ratings from “negative” to “stable.”
• On June 7, 2006, AM Best reaffirmed our debt ratings and financial strength ratings and maintained the
outlook on the ratings at “negative.”
• On August 31, 2006, S&P reaffirmed our counterparty credit rating and affirmed the counterparty credit
and financial strength ratings on our various operating subsidiaries. S&P also revised its outlook on our
holding company ratings from “stable” to “positive” and maintained the outlook of our subsidiaries at
“stable.”
• On August 22, 2006, Fitch affirmed the ratings of our subsidiaries and on our debt and maintained the
outlook as “stable.”