STATE OF MAINE
DEPARTMENT OF PROFESSIONAL & FINANCIAL REGULATION
BUREAU OF INSURANCE
FORM A APPLICATION OF
PROVIDENT COMPANIES, INC.
AND HUGH O. MACLELLAN, JR
PERTAINING TO THE
ACQUISITION OF CONTROL
OF UNUM LIFE INSURANCE
COMPANY OF AMERICA
Docket No. INS-99-1
BACKGROUND AND PROCEDURAL HISTORY
This matter is before the Superintendent of Insurance
as a result of the filing on January 1, 1999 of an application by Provident
Companies, Inc. and Hugh O. Maclellan, Jr. (hereinafter, the "Applicants").
The application seeks the approval, pursuant to 24-A M.R.S.A. §§222 and
3476, of the Applicants plan to acquire control of UNUM Life Insurance
Company of America (hereinafter, "UNUM Life") by merger of Provident
Companies, Inc. (hereinafter, "Provident") with UNUM Corporation
(hereinafter, "UNUM"), the ultimate holding company for UNUM
Life. Following the merger, Provident will be the surviving corporation
and will be renamed UNUMProvident Corporation. After the acquisition of
control, UNUMProvident will directly own all of the issued and outstanding
common stock of UNUM Holding and will indirectly own 82.72% and directly
own 17.28% of the issued and outstanding common stock of UNUM Life.
Immediately prior to the effective time of the merger
and resulting acquisition of control, there will be a reclassification
and conversion of each share of common stock of Provident then issued
and outstanding into 0.73 of a share of Provident common stock. At the
effective time, there will be a conversion of each share of common stock
of UNUM issued and outstanding immediately prior to the effective time
(excluding shares held by UNUM or Provident other than shares held on
behalf of third parties) into one share of UNUMProvident common stock.
At the effective time, the shares of Provident common stock will not be
further affected but will thereafter be shares of UNUMProvident common
stock. Provident stockholders will receive only a whole number of shares
of UNUMProvident common stock and will be entitled to receive a cash payment
for any fractional shares arising from the reclassification and merger.
Following the filing of the application, a Notice of
Pending Proceeding and Prehearing Conference was published twice in the
five daily newspapers in the State of Maine as well as the Wall Street
Journal (Asian edition) and the Financial Times of London.
The Superintendent of Insurance issued his First Discovery Request on
February 2, 1999. On February 4, 1999, a request for intervention was
received from Jason Adkins, Esq. on behalf of George E. Ginther and Niagara
Financial Services Incorporated (hereinafter, "Niagara"). The
law firm of Troutman and Sanders filed a request for intervention on behalf
of Alan E. Serby on February 8, 1999.
The first prehearing conference was held, as scheduled,
on February 8, 1999. On February 17, 1999, the Superintendent appointed
a Bureau of Insurance Staff Advocacy Panel to assist in the review of
this transaction.1 The Advocacy Panel was granted full party
status and charged with the responsibility of obtaining information sufficient
for the Superintendent to make a reasoned and fair decision. A telephone
conference was scheduled for February 17, 1999 to consider the pending
Motions for Intervention. At the request of counsel for Mr. Ginther and
Niagara, however, the conference was rescheduled to February 24, 1999.
After consideration of the arguments presented during the February 24th telephone conference, the Superintendent denied the pending requests for
intervention. See Order Denying Intervention issued March 2, 1999.
1The members of the Advocacy
Panel appointed by the Superintendent were Nancy Johnson, Deputy Superintendent,
Joel Thomsen, Director of Financial Examination, Lisa Nelson, Examiner
in Charge, and Richard Diamond, F.S.A., Life & Health Actuary
A second prehearing conference was noticed on March 16,
1999. The conference was held, as scheduled, on March 26, 1999. On April
15, 1999, a request for intervention was filed by Jason Adkins, Esq. on
behalf of Frederick C. Berry, Jr. Intervenor status was granted Mr. Berry
on April 23, 1999. That same day, a Notice of Hearing was issued establishing
the hearing date as June 21, 1999. All parties requested that the date
of the hearing be changed. After a conference of counsel at which oral
argument was taken regarding the date for hearing, the Superintendent
rescheduled the hearing for June 14, 1999 with June 15 and 16 reserved,
if needed. An Amended Notice of Hearing was issued April 29, 1999.
The Superintendent received additional requests for intervention
from Dr. John Bussell, Dr. Judy Morris and Dr. Letantia Bussell on May
12, 13, 14, and 18, 1999, respectively. Requests were received from Debra
L. Fisher and Dr. Steven Grahek on May 18, 1999. All five requests were
granted. In granting the requests, the Superintendent ordered the Intervenors
to coordinate their efforts and make single, comprehensive filings. The
coordination was required in order to avoid repetition and undue delay.
A third prehearing conference was held on May 27, 1999
to address various motions, requests, and responses. The numerous discovery
and procedural requests filed in this proceeding, along with the Orders
issued relative to the motions and requests, are part of the record and
are on the file at the Bureau of Insurance.
The hearing was held, as scheduled, on June 14 and 15,
1999. As provided for in the Notice of Hearing, the first two hours of
the hearing were reserved for public comment and participation. Provident,
UNUM, and the Bureau of Insurance Advocacy Panel appeared at and participated
in the hearing. None of the Intervenors, personally or through counsel
or other representative, appeared at or participated in the hearing.2
2Dr. Judy Morris appeared during
the public comment period and gave an unsworn statement but left the premises
prior to the evidentiary portion of the hearing. Jason Adkins, Esq. appeared
prior to the public comment period. Mr. Adkins left the premises before
the public comment period commenced.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The Superintendent of Insurance is required by 24-A M.R.S.A.
§222 (7)(A) to hold a hearing on an application for approval of the acquisition
and control of a domestic insurance company within thirty days of the
filing of the application. An application is considered "filed"
once it has been deemed "complete" by the Superintendent. After
receiving a recommendation of completeness from the Advocacy Panel, the
Superintendent found the pending application complete as of June 3, 1999.
After the conclusion of the hearing on the application
for approval, the Superintendent is required to issue a decision on the
application within thirty days. In making his decision, the Superintendent
shall approve any acquisition unless he finds that:
- After the change of control, the domestic insurer could not satisfy
the requirements for the issuance of a certificate of authority according
to requirements in force at the time of the issuance, or last renewal
or continuation of its certificate of authority to do the insurance
business which it intends to transact in this State;
- The effect of the purchase, exchange, merger of a controlling person
of the insurer, or other acquisitions of control may be substantially
to lessen competition in insurance in this State or tend to create
a monopoly therein; or would violate the laws of this State or of
the United States relating to monopolies or restraints of trade;
- The financial condition of an acquiring person is such as would
jeopardize the financial stability of the insurer or prejudice the
insurer or its policyholders;
- The plans or proposals which the acquirer has to liquidate the insurer,
to sell its assets or to merge it with any person, or to make any
other major change to its business or corporate structure or management,
is unfair or prejudicial to its policyholders;
- The competence, experience and integrity of those persons who would
control the operation of the insurer indicate that it would not be
in the interest of policyholders or the public to permit them to do
- Any party to an agreement to merge with a domestic insurer is not
itself an insurer; or
- The acquisition of control would tend to affect adversely the contractual
obligations of the domestic insurer or its ability and tendency to
render services in the future to its policyholders and the public.
In addition to the requirements of 24-A M.R.S.A. §222
(7)(A), the Superintendent shall not approve the change of control if
- That the proposed new owners are not qualified by character, experience
and financial responsibility to control and operate the insurer or
cause the insurer to be operated in a lawful and proper manner; or
- That as a result of the proposed change of control the insurer may
not be qualified for a certificate of authority under §407 (ownership,
- That the interests of the insurer or other stockholders of the insurer
or policyholders would be impaired through the proposed change of
- That the proposed change of control would tend materially to lessen
competition, or to create a monopoly, in a business of insurance in
this State or elsewhere.
See 24-A M.R.S.A. §3476.
At the hearing held on June 14 and 15, 1999, the Superintendent
accepted evidence and arguments for the Applicants and the Bureau of Insurance
Staff Advocacy Panel. The Intervenors voluntarily chose not to present
any testimony or documentary evidence at the hearing. Nonetheless, the
Superintendent entered the prefiled testimony of Intervenors Berry, Bussell
and Morris into the record as hearing officer exhibits in order to have
some of the information produced by the Intervenors in the record.
OVERVIEW OF TRANSITION AND INTEGRATION
Since the merger was announced in November 1998, UNUM and Provident have
been engaged in an effort to prepare the transition from two separate
corporate enterprises into a form that, operationally speaking, will function
as one integrated entity. The responsibility for overall transitional
strategy and ongoing transition oversight has been vested in a Policy
Group comprised of six senior executives.3 A fundamental goal
of the transition project is to identify the "best practices"
of either organization as the standard for the new entity. UNUMs
basic operational structure will be organized around functions or "centers
of expertise" such as finance, investments, underwriting, claims,
product management and customer services rather than on a product line
basis as is currently the case. Applicants Exhibit 17, pp. 11-14.
UNUM and Provident have determined to enter into a General Services Agreement
and an Investment Advisory Agreement. Applicants Exhibits 10 and
11 provide agreements between Provident and the Paul Revere Life Insurance
Company analogous to those to be utilized in this transaction. For example,
processing of benefit claims will be handled on an integrated basis regardless
of whether a claim is made under a group or individual insurance policy
of Provident Life and Accident Insurance Company, Paul Revere Life Insurance
Company or UNUM Life Insurance Company of America and investments for
all insurers in the group will be handled by Provident Investment Management,
3The policy group consists of three current
UNUM employees, James F. Orr, Elaine D. Rosen and Robert Crispin and three
current Provident employees, J. Harold Chandler, Dean Copeland, and Thomas
R. Watjen. See Applicants Exhibit # 17.
Once the Policy Group decided to pursue an integrated approach, underlying
project teams were established in each operational area to develop the
structural details necessary to carry out the objectives. Generally, this
has led since November 1998 to a progressively more detailed "blueprint"
of what the UNUMProvident group of companies will look like, including
the development of company policies and procedures and decisions on personnel
retention. Testimony was provided at hearing that UNUM and Provident are
"right on schedule" with respect to those arrangements that
need to be in place on or prior to what the companies refer to as "customer
day one" (30 days after the closing of the merger). Transcript of
6/14/99 hearing at 173-174; Applicants Exhibit #17.
The proposed post merger changes in operational structures also include
a number of personnel decisions. The record indicates that the companies
anticipate the elimination of approximately 1,600 positions before December
31, 2000, but also anticipate the addition of 500 positions in the claims
area during the same period. It is represented that a large percentage
of the staff reduction will be accomplished through attrition and early
retirement and that layoffs will be minimal. Applicants Exhibit
The manner in which UNUM and Provident propose to integrate
the companies is relevant to a number of the statutory standards to be
considered by the Superintendent. Based upon the evidence adduced at the
hearing, the Superintendents analysis of the statutory standards
is as follows:
- Whether, after the change in control, UNUM Life can satisfy
the requirements for the continuance of its certificate of authority
to do the insurance business which it intends to transact in Maine.4
4This standard encompasses both the
first standard under 24-A M.R.S.A. §222(7) and under 24-A M.R.S.A. §3476.
UNUM Life currently is authorized in the State of
Maine to transact the following lines of insurance: life (including
credit life), health (including credit health), variable annuity,
workers compensation, and aircraft (all perils). No evidence has been
presented to show that any aspect of the proposed acquisition will
affect UNUM Lifes ability to continue to satisfy the requirements
for its certificate of authority.
- Whether the effect of the merger of Provident and UNUM and
the resulting acquisition of control of UNUM Life may be to lessen
substantially competition in insurance in Maine or tend to create
a monopoly therein, or would violate the laws of Maine or the United
States related to monopolies or restraints of trade; or would tend
materially to lessen competition, or to create any monopoly in a business
of insurance in Maine or elsewhere. 5
5This standard encompasses both the second
standard under 24-A M.R.S.A. §222 (7) and the fourth standard under 24-A
The Applicants presented the testimony of Dr. Monica
G. Noether, Vice President with Charles River Associates, an economic
consulting firm in Boston, Massachusetts. Dr. Noether testified that
her charge on behalf of the Applicants was to "assess the likely
competitive effects the merger would have and to outline findings
in the report" which had been submitted as evidence. See June 14, 1999 transcript, page 145, lines 14-18.
In any antitrust analysis the initial determinations
to be made are: what is the relevant geographic market and what is
the relevant product market. In Dr. Noethers opinion, the correct
geographic market is a national market. The basis for her conclusion
is her belief that nationally significant insurance companies are
"registered in all states" and that state licensing requirements
are similar. Applicants Exhibit #20. Further, Dr. Noether pointed
out that premiums for both individual and group disability insurance
are generally established nationally. No evidence contradicting Dr.
Noethers assessment of the geographic market was presented.
On the contrary, evidence was presented indicating the United States
Federal Trade Commission (FTC), in conducting its review, utilized
a national market.6 The Superintendent finds the relevant
geographic market to be a national market.
6The United States Federal
Trade Commission undertook a review of the proposed merger of UNUM and
Provident based upon the FTCs belief the merger could be in violation
of Section 7 of the Clayton Act, as amended, 15 U.S.C. §18, and Section
5 of the Federal Trade Commission Act, 15 U.S.C. §45. A copy of the FTC
Complaint In the Matter of Provident Companies, Inc. and UNUM Corporation
was admitted into evidence as Advocacy Panel Exhibit #19.
The second inquiry is to define a relevant product
market. Dr. Noether concluded the most relevant product market relative
to this merger is all privately-sponsored long term disability insurance.
Dr. Noether testified that all private disability insurance is the
appropriate product market for several reasons. First, she believes
the demarcation between individual and group disability products has
been "blurring" as movement is made toward integrating products.
Additionally, Dr. Noether stated people who historically have purchased
individual disability policies, such as doctors and attorneys, are
now becoming employees and have access to group policies. Self-employed
persons, according to Dr. Noether, often purchase policies through
On cross-examination, Dr. Noether agreed that the
FTC defined the relevant product market as individual disability but,
for the reasons indicated above, she disagreed with that conclusion.
In discussing the individual marketplace during cross-examination,
Elaine Rosen, President of UNUM Life, also testified that there is
a blurring of the individual and group disability markets. Unlike
Dr. Noether, however, Ms. Rosen sees the blurring resulting from employees,
who previously were part of a group, now working in partnerships,
sole proprietorships, or in consulting roles.
The Superintendent is not persuaded that all private
disability is the relevant product market for analysis of the pending
merger. Based upon the inconsistencies between Dr. Noethers
and Ms. Rosens testimony, as well as the conclusion of the FTC,
the Superintendent finds the relevant product market to be individual
After considering the relevant geographic and product
markets, the next step in the Federal Merger Guidelines is to calculate
overall market concentration utilizing the Herfindahl-Hirschman Index
(the "HHI"). Since the Superintendent finds the relevant
product market to be all individual disability, it is Dr. Noethers
calculation for that line of business that is given the greatest weight.
Dr. Noether calculated the HHI resulting in a figure of 1,349. That
number is within the "moderately concentrated" range. The
FTC, on the other hand, found the relevant markets to be "highly
concentrated" as calculated under the HHI. See Advocacy
Panel Exhibit #19 (FTC Complaint).
Whether the markets are found to be moderately or
highly concentrated, the next step in the merger guideline analysis
is to assess the ease of entry into the market. Dr. Noethers
assessment was that as long as the product market is profitable, "there
is no shortage of potential entrants into the market." See Prefiled Testimony of Dr. Monica Noether, Applicants Exhibit
#20. The existence of companies currently writing some disability
insurance coupled with existing companies selling complementary products
formed, in part, the basis for Dr. Noethers opinion. Moreover,
Dr. Noether relied upon her perception, as noted previously, that
the distinction between individual and group products is "blurring".
This results in what she described as a "dynamic" market.
The complaint of the FTC, however, states barriers
to entry and expansion in the relevant markets do exist. The FTC notes
that the merger of UNUM and Provident will result in a substantial
amount of individual disability claims data being possessed by the
surviving corporation. UNUMProvident will have little incentive to
share such data since it can be used by existing competitors to expand
and by potential competitors to enter the market. Thus, the FTC has
entered into a consent agreement with UNUM and Provident requiring
UNUMProvident to supply specified data at the request of the Society
of Actuaries, the National Association of Insurance Commissioners,
or its designee. The consent agreement is still in the public comment
The Superintendent is skeptical as to Dr. Noethers
assertions that the merger of UNUM and Provident is not likely to
affect ease of entry into the market. It is more likely that entry,
as well as expansion, could be stifled through the refusal of UNUMProvident
to share pertinent data. The Superintendent finds the remedy to the
potential barrier fashioned by the FTC appropriate. Thus, the standard
regarding competition is met by operation of the FTC Consent Agreement
and Order. The Applicants, and ultimately UNUMProvident, are required
to notify the Superintendent in writing of any changes made to the
consent agreement and to file a copy of the final consent order and
agreement issued by the FTC. Further, UNUMProvident shall notify the
Superintendent in writing any time it is requested to provide individual
disability claims data pursuant to the FTC Order.
- Whether the financial condition of the Applicants is such
as would jeopardize the financial condition of UNUM Life or prejudice
the interest of policyholders.
Provident Insurance Companies total capital and surplus as of December
31, 1997 was $1.4 billion. By the end of 1998, total capital and surplus
increased 3.6% to $1.45 billion. The companys net income before
dividends for 1997 was (redacted). In 1998, this amount
grew to (redacted), which represents an increase of (redacted)
over the one year period. Provident Insurance Companies paid dividends
of $111.9 million in 1997 and $136.9 million in 1998. Net income after
dividends was (redacted) for 1997 and (redacted)
for 1998. See Advocacy Panel Exhibit #24. Provident Insurance Companies
capital and surplus position, profitability, and dividends demonstrate
that the companies are not in such financial condition as would jeopardize
the financial condition of UNUM Life or prejudice the interests of the
policyholders. This is further evidenced by Provident Insurance Companies
receipt of ratings categorized as excellent by the primary rating organizations.
Applicants Exhibit 16, 18.
During the hearing, the Advocacy Panel presented a report prepared by
the firm of Arthur Andersen LLP, which the Advocacy Panel had retained
to assist it in this proceeding. Arthur Andersens risk based capital
standards analysis of Provident Life projected their RBC ratio, as of
December 31, 1998, (redacted) (the RBC ratio is defined
as the adjusted capital to the company action level).7 See Advocacy Panel Exhibit #24. In its report, Arthur Andersen concludes that
this level is (redacted).
7Risk Based Capital as indicated in the Arthur
Andersen report "represents a dynamic approach to regulatory measurement
of capital adequacy of life and health insurers". RBC is the amount
of capital needed to absorb the financial, underwriting and investment
risks assumed by an insurer.
Provident Insurance Companies will incur approximately (redacted)
of the pre-tax merger-related charges in 1999. These expenses are comprised
of employee related expenses such as severance costs, restricted stock
costs and outplacement costs, early retirement offers, and exit costs
for duplicate facilities and asset abandonment. See Advocacy Panel
Exhibit #24. Other than the merger-related expenses, Provident will incur
an insignificant amount of expense to compensate shareholders for cash
in lieu of fractional shares in the amount of less than $750,000. These
amounts will be paid out of existing cash on hand. See Applicants
Pre-tax merger-related expenses for 1999 for UNUM Insurance Companies
total (redacted) of the total expenses. See Advocacy
Panel Exhibit 24. These expenses are consistent with the expense categories
Provident insurance companies are expected to incur.
Total pre-tax merger-related expenses for UNUMProvident are expected
to be (redacted) for 1999. (redacted) are
incurred at the combined entity level and include investment banking,
legal, and accounting fees. The rest of the expenses are allocated between
UNUM insurance companies and Provident insurance companies. Expected savings
for UNUM America are (redacted) and (redacted)
for Provident Life for a total of (redacted) pre-tax merger
savings for 1999. These savings are expected to (redacted)
in 2000 and (redacted) in 2001. See Advocacy Panel
Exhibit #24. However, given the inherent variability in projections of
this nature, it will be necessary to monitor the projected expenses and
savings to actual results.
Once the merger is consummated, approximately 58% of the UNUMProvident
shares are expected to be owned by former UNUM stockholders while 42%
will be owned by former Provident stockholders. See Applicants Exhibit #4. UNUMProvident Insurance Companies total capital and
surplus, exclusive of merger costs and savings would have been (redacted)
as of December 31, 1998. Net income after dividends would have been(redacted).
As previously stated, Provident insurance companies have received ratings
denoted as excellent from the primary rating organizations. UNUM insurance
companies ratings are denoted as superior. The ratings have been placed
under review due to the pending merger. It is anticipated that the ratings
of UNUMProvident will fall between the excellent and superior categories. See Applicants Exhibits #16, 17, and 18.
Although the record supports a finding that the financial condition of
the Applicants does not jeopardize the financial stability of UNUM or
prejudice the interest of UNUMs policyholders, the record does not
contain a consolidated business plan for the combined companies.
- Whether the Applicants have any plans or proposals to liquidate
UNUM Life, to sell its assets or to merge it with any person, or to
make any other major change in its business or corporate structure,
or management which are unfair or prejudicial to policyholders.
Provident Companies and Hugh O. Maclellan, Jr. state in their Form A
Application that, "The Applicants have no present plans or proposals
to have the Acquired Insurer declare any extraordinary dividends, to liquidate
the Acquired Insurer, to sell the Acquired Insurers assets (other
than such sales of assets as may be contemplated in the ordinary course
of the Acquired Insurers business) or to merge the Acquired Insurer
with any person or persons or to make any material change in the Acquired
Insurers business operations or corporate structure or management
of the Acquired Insurer (other than what is described above)." Applicants
In his prefiled testimony, J. Harold Chandler, Chairman, President and
Chief Executive Officer of Provident Companies, states, "We have
no plans to merge UNUM Life into any Provident Companies or vice versa."
Applicants Exhibit #16 page 16.
In addition, Thomas Ros Watjen states in his prefiled testimony, "The
proposed merger does not involve any plans to liquidate UNUM Life, to
sell its assets or merge it with any entity (other than sales or dispositions
in the ordinary course of business) or to make any major change in its
business or corporate structure or management that would be unfair or
prejudicial to policyholders of UNUM Life." Applicants Exhibit
#17, p. 25. The affect of the significant changes to structure and management
on policyholders is discussed below.
5. Whether the competence, experience and integrity of the Applicants
would not be in the interest of policyholders or the public to control
the operation of UNUM Life. Whether Applicants are qualified
by character, experience and financial responsibility to control and
operate UNUM Life or cause to be operated in a lawful and proper manner.
The Applicants contend that they have demonstrated compliance with these
standards through the testimony of Thomas Ros Watjen and Applicants Exhibits
1 (at Tabs 14-16) and Exhibits #2, 3 and 4. This evidence provides biographical
affidavits for Mr. Maclellan, executive officers and senior managers contemplated
for UNUMProvident. This evidence also demonstrates that experienced managers
have been selected by the Policy Group and are in place for all major
operating units or divisions of UNUMProvident.
Nothing in the evidence or testimony suggests
other than that UNUMProvident has assembled a management team qualified
by many years of education, training and experience in the insurance business
and in other industries to operate the UNUMProvident Companies. No challenge
or assertion to such a finding has been proffered by the Advocacy Panel.
No credible, sworn testimony or evidence that calls into question the
qualifications and integrity of the individuals who will operate UNUMProvident
has been presented. Therefore, the Superintendent finds that the Applicants
have satisfied the requirements of 24-A M.R.S.A. §222(7)(A)(5).
- 6. Whether any party to an agreement to merge with a domestic insurer
is not itself an insurer.
Inasmuch as this transaction represents an agreement to merge two holding
companies and does not reflect a merger with a domestic insurer, this
standard does not apply.
- Whether the proposed acquisition of control by merger would tend
to affect adversely UNUM Lifes contractual obligations or its
ability and tendency to render services in the future to its policyholders
and to the public. Whether the interests of UNUM Life, its stockholders
or policyholders would be impaired through the proposed change of
It is clear from the testimony the Applicants and UNUM contemplate that,
as a result of the merger, there will be significant changes in many operational
areas of UNUM that may be described as having policyholder implications.
The issue for the Superintendent, however, is not simply whether change
will occur, but rather whether or not that change will be detrimental
UNUM not only contends that the transition will not be detrimental to
policyholders, but postulates a scenario wherein policyholders will greatly
benefit from the transaction. See Applicants Exhibits #4
(at pp. 2, 38-41) and #19 (at pp. 12-16); Transcript of June 14, 1999
hearing at pp. 95-98; 104-105, and 160-166. During cross-examination,
Elaine Rosen noted that the first and foremost benefit to policyholders
was a "strong, highly-competitive insurance company." She then
described how UNUMProvident will be able to provide a broader, more competitive
product portfolio for broader markets, enhanced services for return to
work and return to life activities, expanded customer service and expanded
claims service. Transcript of June 14, 1999 hearing at pp. 160-161.
In her prefiled testimony, Ms. Rosen identified the "guiding principles"
of UNUMProvidents disability claims process. Specifically, Ms. Rosen
testified that four [sic] fundamental objectives support these principles:
"integrity in all of our decisions, providing high quality customer
service, coordinating a return to work, return to life focus, and fully
integrating all of the claims activity for those customers who chooses
to purchase multiple products." Applicants Exhibit 19 at 14
and 15. Ms. Rosen went on to verify that UNUMProvident will "implement
the best practices in all that we do to support these key guiding principles." Id.
On the other hand, Counsel for the Bureau of Insurance Advocacy Panel,
in his opening statement, noted "the intervenors have some doubts
about any benefit to policyholders from this proposed merger, and the
Advocacy Panel believes that considerable work needs to be done, particularly
by Provident Life, in the way that complaints and claims are handled and
policyholders are treated. The panel is concerned that the needs and rights
of policyholders may fall victim to the vigorous return-to-work philosophy
developed by Provident Life and to be the cornerstone of the UNUMProvidents
integrated claims operation. In particular, the Panel wonders whether
return-to-work plans may require seeking appropriate treatment that has
not been recommended by the claimants care providers and is not
covered by a claimants health insurance." Transcript of June
14, 1999 hearing at p. 72.
Counsel continued that " (t)he Panel, by letter dated June 11, 1999
expressed its opinion that there did not appear to be any reasons to preclude
the merger from going forward. Nevertheless, the Panel has recommended
that the Superintendent
undertake a market conduct examination to
evaluate the impact of the integration on policyholders and claimants." Id at 72-73.
Arthur Andersen, at the request of the Advocacy Panel, performed a limited
scope review of Providents complaint and claims handling practices
excluding the Paul Revere Companies. Areas reviewed included claims and
complaint handling, appeal procedures, customer service, compliance audits,
and a review of market conduct examinations conducted during the last
five years. Arthur Andersen also reviewed trends relating to complaints,
appeals, reopened claims, and lawsuits filed for both UNUM and Provident
in recent years. Exhibit A to Advocacy Panel Exhibit #24. The Andersen
report notes several areas of concern with aspects of Providents
compliance program with respect to market conduct and claims issues. Advocacy
Panel Exhibit #24 at 54-63; Exhibits A-D and Confidential Exhibit E to
Advocacy Panel Exhibit #24.
While Arthur Andersen does not suggest that any of the concerns noted
are sufficient to create an impediment to the merger, it did recommend
a market conduct examination of UNUMProvident within 12-18 months of the
merger. The report also contains a list of ten specific recommendations.
Advocacy Panel Exhibit #24 at p. 63. The Applicants did not dispute any
of the findings and recommendations of the Andersen report.
While the Advocacy Panel directed various questions regarding market
conduct and claims issues to the Applicants witnesses during cross-examination,
no substantial evidence was developed at the hearing which would support
a finding that the merger would be detrimental to policyholders in terms
of UNUMs ongoing ability to fulfill its contractual obligations
8Prefiled testimony was submitted by Intervenors
Frederick C. Berry, Jr., John and Letantia Bussell, M.D.s, and Judy Morris,
M.D. Hearing Officer Exhibits 1,2 and 3, respectively. While all of the
testimony asserts improper claims practices by either UNUM or the Provident
companies, Mr. Berry and Drs. Bussell did not appear at hearing to aver
to their testimony. Dr. Morris read an unsworn statement into the record
during the public comment portion of the hearing, but declined to be placed
under oath or to be subject to cross-examination. She also was not present
at the appropriate time in the hearing to aver to her prefiled testimony
for reasons described elsewhere in this decision. While unsworn comments
may be placed on the record of proceeding, they may not serve, under Maine
law, as a basis for decision by the Superintendent. 5 M.R.S.A. Section
FAIRNESS TO SHAREHOLDERS
Title 24-A M.R.S.A. Section 3476 (2)(C) provides that the Superintendent
shall not approve a proposed change of control of a domestic insurer if
he finds that "the interests of the insurer or other stockholders
of the insurer or policyholder would be impaired through the proposed
change of control." With respect to the question of the fairness
of the merger to shareholders of UNUM, the Merger Agreement provides that
at the effective time of the merger, each share of UNUM common stock that
is owned by Provident or UNUM (and in each case not held on behalf of
third parties) shall automatically be canceled and retired and cease to
exist, and no consideration shall be delivered for any such shares. With
respect to all other shares of UNUM common stock, the Merger Agreement
contemplates a "one for one" stock swap of UNUM common stock
for UNUMProvident common stock. UNUM retained the firm of Morgan Stanley
& Co., Inc. as its financial advisor in connection with the merger
and related transactions. On November 22, 1998 Morgan Stanley provided
a written opinion that, based upon and subject to terms and conditions
expressed in its opinion, the transaction contemplated by the Merger Agreement
is fair from a financial point of view to holders of shares of UNUM common
stock. Appendix F to Applicants Exhibit #4.
A special meeting of stockholders of UNUM Corporation has been scheduled
for June 30, 1999. The purpose of this special meeting is for the stockholders
to consider and vote upon the proposed Agreement and Plan of Merger. A
Form S-4 Registration Statement regarding this matter has been accepted
for filing by the United States Securities and Exchange Commission. This
Registration Statement sets forth substantial information to be provided
to shareholders regarding the transaction.
Insofar as the opinion expressed by Morgan Stanley in its November 22,
1998 letter is uncontroverted on the record and UNUM has satisfied SEC
requirements, the Superintendent finds no basis to conclude that the transaction
is unfair to shareholders of UNUM.
CONCLUSIONS OF LAW
After having reviewed the record in this proceeding, the Superintendent
concludes that the Applicants have met the standards of 24-A M.R.S.A.
§§222 and 3476. The Superintendent is concerned that certain aspects of
the integration and operation of the merged companies require specific
regulatory oversight. Therefore, the proposed acquisition of control of
UNUM Life of America by merger of UNUM Corporation and Provident Companies,
Inc. should be approved with certain conditions.
The application of Provident Companies, Inc. and Hugh O. Maclellan, Jr.
to acquire UNUM Life of America by merger of Provident Companies, Inc.
and UNUM Corporation is hereby APPROVED subject to the following
- UNUMProvident Corporation:
- Shall file a consolidated business plan with the Superintendent
by December 31, 1999, for the period 2000-2002;
- Shall file with the Superintendent a dividend plan for UNUMProvident
Corporation prior to the declaration of any dividends, but no later
than December 31, 1999. Such dividend plan may be included in the
consolidated business plan;
- Shall notify the Superintendent in writing of any changes made
to the Consent Agreement entered into with the FTC as well as the
FTC Consent Order;
- Shall notify the Superintendent in writing any time it is requested
to provide individual disability claims data pursuant to the FTC
- Shall prepare and file with the Superintendent written claims
procedures and appeals procedures manuals and a written plan specifying
which procedures will be instituted to enhance market compliance.
In light of the uncontested Arthur Andersen report, the Superintendent
expects the plan to include those items identified in the report.
The plan and manuals shall be filed no later than 6 months from
the issuance of this decision and order. Nothing contained in this
condition limits the Superintendents ability to call a market
conduct examination at any time.
- UNUM Life Insurance Company of America:
- In its statutory quarterly reports to the Superintendent shall
identify, quantify, and track actual merger savings and expenses
and compare the actual savings and expenses to the estimates provided
in the UNUM Life business plan filed as Applicants Exhibit
- Shall file with the Superintendent quarterly updates on UNUM Life
progress with respect to its plans on the claims inventory as well
as a status each quarter on the claims integration activities and
reserves. These reports shall also include a claims litigation status
- In its second quarter statutory report for 1999, shall file with
the Superintendent an analysis of its change in GAAP and statutory
disability life reserves interest rate assumptions, such analysis
to include a report of the actual effect of the change on investment
- Shall file a copy of a custodial agreement between itself and
the custodian of UNUM Lifes corporate securities along with
affidavits evidencing ownership of the securities any time UNUM
Life changes its existing custodial arrangements; and
- Shall obtain approval of the Superintendent as is required by
24-A M.R.S.A. §3415, prior to borrowing any funds supported by a
- General Conditions:
- When conducting an examination of UNUM Life, the Bureau of Insurance,
or its designees, shall be given complete access to the accounts,
records, documents, and transactions pertaining to or affecting
the affairs of UNUM Life whether in the possession of UNUM Life
or UNUMProvident. Nothing in this condition affects the prohibition
contained in 24-A M.R.S.A. §3408 against removing all or a material
part of the records or assets of UNUM Life from Maine.
- To the extent Bureau staff or the Bureaus consultants or
designees are required to examine records in a location other than
Portland, Maine, the Bureau of Insurance shall be reimbursed the
actual cost of such examination.
- The Applicants shall file with the Superintendent any decisions
and/or orders of other state, federal or foreign regulatory entities
with respect to this transaction.
- Provident and UNUM shall submit independent audit opinions concerning
the qualification of the merger for the pooling of interests method
- Provident and UNUM shall submit legal opinions from their counsel
upon their issuance regarding the qualification of the tax-free
NOTICE OF APPEAL RIGHTS
This Decision and Order is a final agency action of the Superintendent
of Insurance within the meaning of the Maine Administrative Procedure
Act. It is appealable to the Superior Court in the manner provided in
24-A M.R.S.A. §236, 5 M.R.S.A. § 11001, et seq. and M.R.
Civ. P. 80C. Any party to the hearing may initiate an appeal within thirty
days after receiving this notice. Any aggrieved non-party whose interests
are substantially and directly affected by this Decision and Order may
initiate an appeal within forty (40) days of the issuance of this decision.
There is no automatic stay pending appeal; application for stay may be
made in the manner provided in 5 M.R.S.A. §11004.
PER ORDER OF THE SUPERINTENDENT OF INSURANCE
ALESSANDRO A. IUPPA
Superintendent of Insurance
January 17, 2014