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Uncertainty hurts Unum disability results

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Confusion about where interest rates are going is adding to the pain low rates are causing for lines of business that depend heavily on investments in bonds.

Executives at Unum Group Corp. (NYSE:UNM) talked about rate-related headaches today at a conference call with securities analysts.

The company held the call to go over first-quarter earnings.

The company is reporting $229 million in net income for the quarter on $2.6 billion in revenue, compared with $213 million in net income on $2.6 billion in revenue for the first quarter of 2013.

The U.S. group disability unit produced $69 million in operating income on $675 million in premium revenue, compared with $78 million in operating income on $693 million in premium revenue for the comparable quarter in 2013.

Group long-term disability (LTD) premium revenue fell to $384 million, from $393 million. Group short-term disability (STD) premium revenue rose to $137 million, from $131 million.

Group LTD sales increased to $12 million, from $11 million.

Disability sales, claims and recoveries were moving in the right direction, but pressure on investment income from low rates was even worse in the first quarter than it’s been in other recent quarters, executives said.

One challenge is that most observers expect interest rates to go up soon, and for spreads between rates on government bonds and corporate bonds to widen, but actual interest rates continue to remain low.

“We’re hesitant to invest fully in this environment,” Richard McKenney, the company’s chief financial officer, said during the conference call.

As a result, Unum is holding a higher percentage of its assets in the form of cash than it would like, and the excess cash is holding down investment income, McKenney said. 

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