September 28, 1999
New York, NY

UnumProvident May Post Charge in Third Quarter
Thomas R. Watjen, Vice Chairman & CFO

UnumProvident may post a charge of $250 million to $500 million in the third quarter, Thomas R. Watjen, company vice chairman and chief financial officer, said.

On Tuesday, Watjen said published reports have estimated the third-quarter charge to be $250 million to 500 million, and he said the company is comfortable with those estimates. However, the company will offset some of the charge with capital gains as it restructures its investment portfolio and sells some real estate, he said.

Watjen said the charge is related to adjusting reserves as the newly merged company reviews its combined book of business, plus merger costs, and the costs to set up a financial wall around Duncanson & Holt, a Lloyd's unit that has been unprofitable. UnumProvident has unsuccessfully tried to sell Duncanson & Holtz, and will set it aside in run off to avoid future impacts on profits, he said.

He said the company announced plans to get rid of the Duncanson business in a filing posted with the Securities and Exchange Commission.

Watjen spoke at the life insurance segment of the CIBC World Market's conference, co-sponsored by A.M. Best Co.

The charge follows UnumProvident's $191.2 million net loss for the second quarter. The net loss of 80 cents a share was down from net income of $173.5 million, or 71 cents a share, for the same period of 1998. The loss included $509 million in pretax charges related to the merger of Unum Corp. and Provident Cos. (BestWire Aug. 3, 1999)

The company still expects to save $120 to $130 million through cost cutting, he said.

Watjen said the company is well-positioned to grow in the long-term disability market, which has barely tapped the middle-income population. While more than 80% of doctors and about 70% of lawyers have disability insurance, less than 3% of middle-income people have disability insurance, Watjen said. Doctors and lawyers make up a relatively small portion of the population, while there are more than 70 million middle-class people, he said.

There's also room to grow in small and middle-sized workplace marketing for long-term disability products, Watjen said. He said group long-term disability has a 75% penetration of the market of larger companies (500 or more lives) but only 23% penetration of companies with five to 24 employees and a 40% penetration of companies with 25 to 249 employees.

Workplace marketing offers a strong opportunity for UnumProvident to grow because 58% of people say they'd rather buy life insurance at work, Watjen said, citing a Limra study.