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Carriers See Brighter Disability Claims Picture

By Allison Bell

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Group disability insurance claims incidence is still higher than StanCorp Financial Group Inc. would like, but the ratio of benefits paid to revenue started to improve some in the fourth quarter of 2011, the company says.

StanCorp, Portland, Ore. (NYSE:SFG), the parent of the Standard, is reporting $39 million for the fourth quarter on $728 million in revenue, compared with $52 million in net income on $710 million in revenue for the fourth quarter of 2010.

Group long-term disabilit (LTD) claims were up, and that contributed to an increase in the group benefits ratio to 71.8%, from 66.7%. But the year-over-year gap is shrinking, and recent group LTD price increases and an improving economy should help narrow the gap further, according to StanCorp Chairman Greg Ness.

StanCorp notes that increases prices both for new LTD business and for renewals of existing cases.

Although LTD prices increased, most group customers kept their coverage, the company says.

“The company’s strong customer retention in the group insurance business has created the potential for organic growth in premiums as wage growth and employment levels improve,” StanCorp says.

Group insurance premium revenue increased 5.6%, to $498 million, and group insurance sales increased to $75 million, from $73 million.

Individual disability insurance premium revenue increased to $43 million, from $41 million.

The discount rate used for newly established LTD claim reserves was 4.75%, down from 5% earlier in the year and in the fourth quarter of 2010.

A 0.25-percentage point change in the discount rate translates into a $1.6 million in StanCorp’s quarterly pre-tax income, the company says.

“The lower discount rate for the fourth quarter of 2011 was primarily the result of a continued low interest rate environment,” the company says.

Reinsurance Group of America Inc., Chesterfield, Mo. (NYSE:RGA), has also released fourth-quarter earnings.

RGA is reporting $159 million in net income for the quarter on $2.3 billion in revenue, compared with $197 million in net income on $2.3 billion in revenue for the fourth quarter of 2010.

Overall U.S. “traditional sub-segment” pre-tax income increased to $116 million, from $113 million, but group disability reinsurance experience was about $11 million worse than RGA had expected.

Disability experience was also unfavorable in Australia during the fourth quarter of 2011, just as it was during the fourth quarter of 2010, RGA says.

Asia Pacific reported pre-tax net income of $4.1 million compared with $10.1 million in the fourth quarter of 2010. The segment reported a pre-tax operating loss of $1.2 million compared to pre-tax operating income of $8.1 million a year ago. Similar to the fourth quarter of 2010, disability experience in Australia was unfavorable.