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Unum continues to fight low rates

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Interest rates started to rise a little in the second quarter — but not enough to give Unum Group Corp. much of an earnings boost.

Unum, a major writer of long-term disability (LTD) insurance, generates much of the revenue needed to pay LTD claims with earnings on bond portfolios.

Although interest rates have started to bounce back up from historic low levels in recent months, Richard McKenney, Unum’s chief financial officer, said yields on newly invested money are still well below the overall portfolio.

“So, the pressure on yields will continue,” McKenney warned during the company’s second-quarter earnings call.

Unum is reporting $219 million in net income for the latest quarter on $2.6 billion in revenue, compared with $216 million in net income on $2.6 billion in revenue for the second quarter of 2012.

Group disability premium revenue increased 1.5 percent, to $524 million, group LTD sales fell 8.9 percent, to $33 million and group short-term disability sales fell 21 percent, to $19 million.

Unum also has a closed block of long-term care insurance (LTC) business.

The company did not break out LTCI unit earnings in its statistical supplement, but it said LTCI premium revenue increased to $158 million, from $157 million, despite the lack of new policy sales.

McKenney said during the call that the LTCI unit operating earnings were up on a year-over-year basis and that group LTCI persistency — the likelihood that policyholders would keep their policies — increased slightly.

The interest-adjusted LTCI loss ratio rose to 90.1 percent, from 87.8 percent, and executives said they would like to get the ratio down to about 85 percent.

Like most other LTCI issuers, Unum has been raising rates on in-force policies. Most states have approved Unum’s rate increase requests, and the revenue from the new, higher rates should start to arrive in 2014, according to Kevin McCarthy, Unum’s chief operating officer.

“We’ll have to see what policyholder behaviors result from that,” McCarthy said. “Whether they accept the rate increases. They could buy down their benefits instead of taking the rate increases, or they could lapse all of those policies.”

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