NU Online News Service, March 12, 2003, 9:53 p.m. EST – Holders of UnumProvident Corp. stock got a little good news Wednesday.
The Chattanooga, Tenn., disability insurer’s share price ended the day up 9.21%, at $6.52, after plummeting Monday and Tuesday.
Investors reacted to a critical rating agency report earlier this week by pushing the price of the company’s stock down more than 50%. The report, from Moody’s Investors Service, New York, questions the effects of low-rated securities on the capital positions of UnumProvident and other insurers.
Earlier this month, UnumProvident disclosed that it was responding to a letter from the U.S. Securities and Exchange Commission about the way it reports problems with speculative-grade securities.
UnumProvident has also acknowledged that it ended 2002 with less consolidated regulatory capital than it had at the end of 2001.
But the company has about as much consolidated regulatory capital as it had at the end of 1999 and 2000, and it says its statutory capital and surplus level has increased 6.6% since mid-2002, to $3.6 billion.
UnumProvident has $1.8 billion in net unrealized gains in its investment portfolio, and it has sold $300 million of its speculative-grade securities, or 10% of its speculative-grade portfolio, since Jan. 1, the company says.
The Moody’s report that alarmed investors says speculative-grade securities made up 12.8% of UnumProvident’s statutory invested assets on Sept. 30, 2002, compared with an average exposure of 6.2% for all of the life insurers Moody’s rates.
Average industry exposure to speculative-grade securities has increased from 5.7% at the end of 2001 and 4.6% at the end of 1997, Moody’s says.
The rating agency notes that much of the increase in exposure to speculative-grade securities is the result of downgrades of investment-grade securities already in the insurers’ portfolios rather than purchases of speculative-grade securities.
Many insurers have not purchased speculative-grade securities for some time, Moody’s says.
Colin Devine, a life industry analyst at Salomon Smith Barney, New York, says he was surprised by UnumProvident’s recent troubles, but he notes that his company placed a sell recommendation on the stock in February.
Andrew Kligerman, an analyst at Bear Stearns & Company Inc., New York, put out a report arguing that the problems with UnumProvident’s stock have dragged down the share prices of other insurers that appear to have healthy investment portfolios.