Unum Group & Its Units Receive Rating Action From A.M. Best

Unum Group (NYSE:UNM) and its units recently received rating from credit rating giant, A.M. Best. The credit rating agency affirmed the Long-Term Issuer Credit Ratings (Long-Term ICR) of “bbb” and the Long-Term Issue Credit Ratings (Long-Term IR) of Unum Group. Concurrently, the rating giant reiterated the Financial Strength Rating (FSR) of A (Excellent) and Long-Term ICR of “a” of the core U.S. life/health insurance subsidiaries of Unum Group.

This apart, the rating agency upgraded the FSR to A- (Excellent) from B++ (Good) and the Long-Term ICR to “a-” from “bbb” of another affiliate, Unum Insurance Company. The credit rating giant also affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” of Starmount Life Insurance Company.

The outlook for these credit ratings remained stable.

The rating affirmations reflect Unum Group’s historically solid operational performance, particularly amid the low interest rate environment, and strong business profile with industry-leading positions as well as diverse distribution networks.

However, the Zacks Rank #3 (Hold) accident and health insurer remains exposed to substantial closed block of long-term care (LTC) policies, which have witnessed margin pressures from pricing issues and continued low rate environment in the past. This may partially offset the positives. Also, Unum Group’s above-average exposure to below investment grade bonds, in comparison to the industry average, can also result in a rating downgrade.

Nonetheless, A.M. Best is optimistic about the group’s prospective risk-adjusted capital position.

Interestingly, the ratings of Unum Insurance signify the additional capital support from Unum Group and the unit’s plans to introduce two new accident and health insurance products in 2017. Notably, Unum Insurance will now play a more strategic role within the organization.

Shares of Unum gained 49.69% in the last one year, significantly outperforming the Zacks categorized Accident and Health Insurance industry’s increase of 21.71%. We expect the company’s strong capital position, robust premium growth (driven by solid persistency levels in core business lines), and solid operational performance to drive the stock higher in the future.

Rating affirmations or upgrades from credit rating agencies play an important role in retaining investor confidence as well as in maintaining credit worthiness of a stock. On the other hand, rating downgrades not only damage business but also increase the cost of future debt issuances. We believe that such ratings will help Unum Group to retain investor confidence and write more businesses going forward.

Stocks to Consider

Some better-ranked stocks from the insurance industry include American Financial Group, Inc. (NYSE:AFG) , Infinity Property and Casualty Corporation (NASDAQ:IPCC) and Argo Group International Holdings, Ltd. (NASDAQ:AGII) . Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

American Financial offers P&C insurance products in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 6.45%.

Infinity Property and Casualty provides personal automobile insurance products in the United States. The company delivered positive surprises in two of the last four quarters with an average beat of 26.16%.

Argo Group International Holdings underwrites specialty insurance and reinsurance products in the property and casualty market worldwide. The company delivered positive surprises in all of the last four quarters with an average beat of 36.54%.

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