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Low rates continue to squeeze Unum

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U.S. disability insurance claims are looking better at Unum Group Inc., but low interest rates continue to hurt investment returns.

Executives at Unum (NYSE:UNM) gave that assessment in a look at fourth-quarter earnings.

The company — which has major disability insurance operations in the United Kingdom, and major voluntary benefits and group life businesses in the United States as well as a large U.S. group disability business — is reporting $221 million in net income for the quarter on $2.6 billion in revenue, compared with $234 million in net income on $2.7 billion in revenue for the fourth quarter of 2012.

Low interest rates hurt long-term disability (LTD) insurance operations and other businesses with long-term obligations more than they hurt short-term disability (STD) operations, which are less dependent on investment income.

Unum’s U.S. group disability business let STD sales increase 18 percent in the fourth quarter, to $55 million. It let LTD sales fall 3.6 percent, to $84 million.

But the Unum unit’s supplemental and voluntary individual disability sales increased 28 percent, to $16 million.

Sales to “core market” employers with fewer than 2,000 covered lives rose 9.4 percent, to $154 million. Sales to bigger employers fell 2.6 percent, to $85 million.

Total U.S. group disability premium revenue fell to $511 million, from $514 million. Net investment income dropped to $134 million, from $145 million.

Commissions held steady at about $39 million.

The percentage of premium revenue going to pay benefits fell to 83.2 percent, from 84.5 percent.

During a conference call with analysts, company executives answered a number of questions about how two other factors — the rise of private benefits exchanges, and an increase in competition in the voluntary benefits market — might affect the company.

Unum executives said the company is either on or getting onto about six to 12 private exchanges, and that it’s looking at exchanges in which employers are still heavily involved with choosing the carriers their workers can use.

Michael Simonds, president of the Unum US, acknowledged that the level of competition is increasing in the voluntary benefits market, and he said the exchanges are also affecting the level of competition.

But the market for most voluntary products is underpenetrated, especially at exchanges that could serve small companies and companies that employ many low-wage workers, Simonds said.

“These are largely new opportunities for us,” Simonds said.

Executives said concerns about the effects of the Patient Protection and Affordable Care  Act (PPACA) had affected employers’ outlook earlier in the year. In the fourth quarter, the effect was mainly on employers with fewer than 50 employees, the executives said.

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