A.M. Best Affirms FSR for UnumProvident

June 1, 2005

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and has assigned issuer credit ratings (ICR) of “a-” to UnumProvident Corp.’s (Chattanooga, Tenn.) insurance subsidiaries. Concurrently, A.M. Best has affirmed the ICR of “bbb-” and all debt ratings of UnumProvident. All ratings have a negative outlook.

These rating affirmations reflect the progress UnumProvident has made over the past several quarters in strengthening its balance sheet, following numerous sizeable charges taken in 2003 and 2004.

Over this period, UnumProvident has strengthened its balance sheet through a series of actions including raising capital; increasing reserves; entering into a reinsurance agreement on its large, closed block of individual disability income business; considerably reducing its below investment grade bond exposure and; decreasing the use of internal loans between operating entities. Adding to its strengthened balance sheet has been the recent improved statutory profitability and the accumulation of surplus within the group’s insurance subsidiaries.

After years of protecting its leading position in the group disability market, UnumProvident has shifted its attention to improving its profitability levels. This has been accomplished by refocusing on its most profitable segments and through more aggressive renewal actions on underperforming groups. In particular, UnumProvident has made improvements in its consolidated risk-adjusted capital position.

The negative outlook will remain in effect until there is more clarity with regards to the ultimate cost of the multi-state market conduct settlement and further improvement is exhibited in the financial flexibility of the parent company, including continued improvement in its financial leverage ratios.

Additionally, the points outlined in A.M. Best’s press release of November 18, 2004, will remain as the target for the maintenance of the current ratings. As was stated at that time, should UnumProvident not meet more than one of the objectives or experience significant deviation on any single item, the group would be subject to a downgrade.

Other areas of concern, which A.M. Best will be monitoring closely over the near term, are the impact that a prolonged low interest rate environment will have on the organization and the slight deterioration in the performance of its long-term disability (LTD) business in the first quarter of 2005.

A.M. Best believes UnumProvident could continue to experience higher than expected loss ratios in its LTD business near term, as it implements the modifications in the claim processing procedures, made as a result of the multi-state settlement.

Moreover, A.M. Best will be closely monitoring the response rates and additional claims activity resulting from the multi-state market conduct settlement, outstanding litigation and resolution of the discussions with the State of California Department of Insurance.

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