UnumProvident Reaches Settlement with California Department of Insurance; 'Changing Landscape' May Impact Cost, Availability of Disability Insurance in State

UnumProvident Corporation (NYSE: UNM) today announcedthat three of its insurance subsidiaries have entered into asettlement agreement with the California Department of Insurance,concluding a market conduct examination and investigation of thesubsidiaries' disability claims handling practices. As part of thesettlement, UnumProvident has agreed to change certain practices andpolicy provisions related to its California business and consistentwith California case law. The settlement also incorporates claimshandling practices previously covered by the multistate agreementreached last year with 48 other states, and includes certainadditional claim handling changes. Additionally, UnumProvident hasagreed to pay a fine of $8 million to the Department as part of thesettlement.

"We are pleased, after more than two years of discussions withCalifornia, to have reached a settlement that eliminates theregulatory uncertainty around claims handling in this importantmarket, and allows UnumProvident to move beyond questions about pastclaims handling practices," said Thomas R. Watjen, president and chiefexecutive officer. "With these issues resolved, we can now focus ourfull attention on running our business in a way that's good forcustomers, shareholders and employees. We look forward to introducingnew products into the California market, and we remain committed todelivering exceptional service to consumers in California andthroughout the country."

In entering the settlement, UnumProvident did not agree with theallegations and characterization of the company's past claims handlingpractices made by the Department.

"While we are taking this step to remove the regulatory cloud thathas been hanging over us, we do not agree with the generalizations theDepartment has made about our company through this process," saidWatjen. "UnumProvident is an organization that works hard to serve itscustomers, and I am proud of the work our employees do on behalf ofthe more than 2 million Californians our policies protect. Last yearalone, we paid more than $600 million in benefits to Californiaresidents, more than any other disability provider. We are committedto doing the right thing and to always striving to improve the levelof service we offer our customers."

Added Watjen, "Over the past two years, our company has undertakenbroad changes designed to improve the quality of claims decisions andour service levels to policyholders. We made many changes during thistime to improve in these areas, and added to those through themultistate settlement that was previously approved by 48 other states.Because of this, we do not believe that California's allegations orthe market conduct exam report, which is essentially a snapshot from aprior period, provide an accurate portrayal of our claim practicestoday.

"Nevertheless, we have concluded it is in the best interest of ourCalifornia customers and our company to reach this settlement so thatwe can focus our energy on continuing to build upon the progress wehave made as a company over the last two years. Since 2003, we haveundergone significant financial and operational restructuring, built anew management team and improved many of our business processes. As aresult of these and other efforts, we are essentially today a 'new'UnumProvident."

Under the terms of the settlement, UnumProvident will change anumber of provisions specific to California disability policies,including the definition of "total disability." The CaliforniaDepartment of Insurance is expected to notify all disability providerswho do business in the state of its concerns about the lawfulness ofcertain provisions contained in present policy language, and to spellout an approach for addressing these concerns.

"The landscape is changing significantly for all disabilityinsurance carriers who do business in California," added Watjen."While we believe that ultimately some of these changes may impact thecost and availability of disability insurance coverage, we are fullycommitted to implementing the terms of the settlement agreement, whichinclude bringing new products to market, and to establishing newindustry standards in claims practices."

Additionally as part of the settlement, UnumProvident will receiveapproval from California for the use of new individual and groupdisability policy forms, which will become available for sale on Nov.1, 2005.

The California settlement also incorporates the claim reassessmentprocess and the changes in claim handling practices contained in theNovember 2004 multistate regulatory settlement agreement that waspreviously ratified by 48 other states. California claimants wereincluded in the 2004 multistate settlement and could choose toparticipate in that claim reassessment process even though Californiadid not join the multistate agreement. Under the California agreement,reassessment notices will be mailed to approximately 26,000individuals whose claims were denied or terminated between Jan. 1,1997, and Sept. 30, 2005. Many of these individuals have alreadyreceived reassessment notices under the multistate agreement.Additionally, an individual whose claim denial or termination isupheld in the reassessment may request an independent review by amember of a panel established for that purpose.

UnumProvident also said it would amend the multistate settlementagreement to include mailing a notice of the claim reassessmentprocess to approximately 29,500 individuals whose claims were deniedor terminated between Jan. 1, 1997, and Dec. 31, 1999. Under theoriginal multistate agreement, claimants during this period couldrequest participation in the reassessment process, but they were notsent a notice.

Watjen said this change is one that has been considered in thepast. "The enhancement we are making is one that had previously beendiscussed on the request of the lead insurance regulators of themultistate agreement," he said. The amendment will also confirm thateligible claimants in the 1997 to 1999 period who do not receive anotice under the amendment, but who are entitled to request areassessment, will have until June 30, 2006, to do so.

Separately, UnumProvident said it is proceeding with a companyplan to offer to reassess private label, acquired and reinsured blockclaims, as well as claims administered on behalf of certain employersfrom Jan. 1, 1997, through Jan. 18, 2005 (and through Sept. 30, 2005for California residents). These approximately 24,000 claims were notincluded in the 2004 multistate regulatory settlement, but the offerbeing made will generally follow the reassessment procedures containedin that agreement.

Based on the settlement agreement and related matters,UnumProvident will record a charge of $75 million before tax or $51.6million after tax ($0.16 per diluted common share) for the thirdquarter of 2005. The pre-tax charge is comprised of four elements:$14.3 million of incremental direct operating expenses to conduct thereassessment process; $37.3 million for benefit costs and reservesreopened from the reassessment; $15.4 million for additional benefitcosts and reserves from claims already incurred and currently ininventory that are anticipated as a result of the claim processchanges being implemented; and the $8 million fine. The ongoingexpenses of changing certain claim practices and policy provisions inCalifornia insurance forms will be included in the company's operatingexpenses as incurred going forward. At this point, the companyanticipates that these ongoing expenses will not materially affect itsresults of operations. The company also expects its ratings to bereaffirmed.

UnumProvident will hold its 2005 Investor Meeting on Monday, Oct.17, 2005, at 10 a.m. Eastern. A live audio webcast of this meeting canbe accessed via the "Investors & Shareholders" section ofwww.unumprovident.com. A replay of the webcast will be available onthis site for two weeks beginning Oct. 18, 2005.

About UnumProvident

UnumProvident (UNM) is the largest provider of group andindividual disability income protection insurance in the United Statesand United Kingdom. Through its subsidiaries, UnumProvidentCorporation insures more than 25 million people and paid $5.9 billionin total benefits to customers in 2004. With primary offices inChattanooga, Tenn., and Portland, Maine, the company employs more than12,000 people worldwide. For more information, visitwww.unumprovident.com.

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A "safe harbor" is provided for "forward-looking statements" underthe Private Securities Litigation Reform Act of 1995. Statements inthis press release, which are not historical facts, areforward-looking statements that involve risks and uncertainties thatcould cause actual results to differ materially from those containedin the forward-looking statements. These risks and uncertaintiesinclude such general matters as general economic or businessconditions; events or consequences relating to terrorism and acts ofwar; competitive factors, including pricing pressures; legislative,regulatory, or tax changes; and the interest rate environment. Morespecifically, they include fluctuations in insurance reserveliabilities, projected new sales and renewals, persistency rates,incidence and recovery rates, pricing and underwriting projections andexperience, retained risks in reinsurance operations, availability andcost of reinsurance, level and results of litigation, rating agencyactions, regulatory actions and investigations, negative mediaattention, the level of pension benefit costs and funding, investmentresults, including credit deterioration of investments, andeffectiveness of product and customer support. For further informationof risks and uncertainties that could affect actual results, see thesections entitled "Cautionary Statement Regarding Forward-LookingStatements" and "Risk Factors" in the Company's Form 10-K for thefiscal year ended December 31, 2004, and subsequently filed Form10-Qs. The forward-looking statements are being made as of the date ofthis press release and the Company expressly disclaims any obligationto update any forward-looking statement contained herein.