High unemployment continued to hurt publicly traded U.S. group disability insurers’ results in the fourth quarter of 2010.
The U.S. group income protection unit at Unum Group Corp., Chattanooga, Tenn., said its group long-term disability (LTD) and short-term disability (STD) insurance sales fell to $105 million in the fourth quarter of 2010, from $110 million in the fourth quarter of 2009. Premium revenue from in-force cases fell to $514 million, from $536 million.
“Ongoing price competition, along with challenging economic conditions which negatively impact employment levels and the company’s continued commitment to disciplined pricing, renewals, and risk selection were contributing factors to the decline in [in-force] premium income,” the company said.
At Hartford Financial Services Group Inc., Hartford, in-force disability premium revenue fell to $470 million, from $471 million, and disability sales fell to $37 million, from $50 million.
“With high unemployment and low wage inflation within our in-force customer base, the environment is still dampening our ability to grow our top line.” Rick McKenney, the company’s chief financial officer, said during a recent Hartford earnings conference.
At StanCorp Financial Group Inc., Portland, Ore., the parent of Standard Insurance Compay, in-force group disablity insurance premium revenue increased 1.3%, to $513 million, but total group sales fell to $73 million, from $93 million in the fourth quarter of 2009. LTD sales fell to $22 million, from $37 million.
Like Unum and Hartford, StanCorp is attributing the soft group disability results to a weak job market.
Sales of individual disability were also slow: they fell 7.4% at Unum to $11 million, and 0.5% at StanCorp, to $41 million.
“The market is not showing any growth,” said Gordon Dinsmore, president of Berkshire Life Insurance Company, Pittsfield, Mass. Berkshire Life is a unit of Guardian Life Insurance Company of America, New York, that sells individual disability insurance.
The drop in disability plan enrollment is similar to a recent drop in employer-sponsored group health plan enrollment, and it appears to be due mainly to layoffs at employers that are still in business.
The number of U.S. workers with full-time jobs fell to 111 million in 2010, down 6% from the total in 2008, according to the Bureau of Labor statistics.
Disability insurers say that they seem to have about as many cases as they had before the recession but that the average size of each case is smaller than it used to be.
In addition to reducing the average case size, the weak job market is dampening the disability plan benefits upgrade market, Unum executives said at Unum’s earnings conference.
Other factors are also making the future for this segment increasingly difficult to forecast. Claim trends, for example, were mixed. The ratio of claims to revenue at the Unum U.S. group business fell to 84.2%, from 84.6%, but the ratio increased to 79.1%, from 72.2%, at Hartford, and to 99%, from 90.3%, at Prudential Financial Inc., Newark, N.J. Berkshire claim rates have held steady. The theory is that “anybody that’s got jobs wants to hold on to them,” Dinsmore said.
One good sign is that bond portfolio income, on which disability insurers depend heavily, has remained positive.
As individual disability insurers must plan for claims that last for decades, “our investment target is very, very long in terms of duration,” Dinsmore said. To that end, long-bond rates have stayed relatively high in recent years, and that has helped individual disability insurers.
Rates on short-term bonds had sunk to much lower, disability insurer-punishing levels, but gradually rising rates have helped push net interest up. Unum, for example, reported its highest net interest levels since 2006, according to securities analysts in the New York office of Sterne, Agee & Leach Inc.