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3 signs of hope in disability insurers’ earnings

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The same low interest rates that have hammered insurers’ long-term care insure (LTCI) and annuity businesses are tapping on long-term disability (LTD) operations, but the disability operations seem to getting through the hail without major dents.

Unum Group Corp. (NYSE:UNM) reported a $279 million net loss for the fourth quarter of 2014, but that was because of a previously announced reserve increase at its closed long-term care insurance (LTCI) block, not because of any issues with ongoing operations.

The ongoing operations, which include a big group disability business, reported $323 million in operating income for the latest quarter on $2.6 billion in revenue, up from $309 million in operating income on $2.6 billion in revenue for the fourth quarter of 2013.

Unum’s group long-term disability (LTD) insurance sales increased 39 percent, to $116 million. The company’s group short-term disability (STD) sales rose 10 percent, to $60 million.

Another insurer with a large disability business, StanCorp Financial Group Inc. (NYSE:SFG), reported $56 million in net income for the quarter on $696 million in revenue, down from $65 million in net income on $719 million in revenue for the year-earlier quarter, but securities analysts and investors took the drop in net income in stride.

See also: 2015 disability and absence management outlook

Executives and analysts said relatively little about the disability products and markets themselves during the conference calls the companies held to talk about earnings with securities analysts.

For more about what disability issuers have been saying this earnings season, read on.


1. Many executives are not bothering to talk about their disability lines.

Cigna Corp. (NYSE:CI) sells group disability insurance along with group life insurance.

During Cigna’s call, Thomas McCarthy, the chief financial officer, simply noted during the call that the group life and disability unit reported $317 million in earnings in 2014, and that was that.


2. Companies sound happy about claim trends.

Doug Elliot, the president of Hartford Financial Services Group Inc. (NYSE:HIG), said disability trends improved more slowly in 2014 than in 2013 but did continue to improve.

“Claim recovery rates continued to be strong,” Elliot said.

At StanCorp, the parent of the Standard, executives said group disability claims were a little higher than they were in 2013, but that group claims were very low in 2013. 

Similarly, individual disability claims were very low in 2013 and a little higher, but still very low, in 2014, executives said.

Unum US is also reporting slightly higher but generally steady claims incidence. There, too, claim recoveries have been strong. 


3. It seems as if interest rates should eventually go up. Some day.

Even though carrier executives weren’t saying much about disability products or markets directly, they did talk about the elephant sitting on the disability units: low interest rates.

“The sustained low interest rate environment continues to challenge the entire industry,” said Floyd Chadee, chief financial officer at StanCorp. “We expect that this challenge will continue in 2015.”

But rates have crept up a little. StanCorp, for example, used a discount rate of 4 percent for new LTD claim reserves in the fourth quarter, up from 3.75 percent a year earlier.

For now, however, the low rates are forcing some carriers to raise coverage prices, according to Greg Ness, the president of StanCorp.

The bright side of the low interest rates and rising prices is an increase in sales opportunities, Ness said.

“We are actually seeing proposal activity increase in each of our regions, and in both the small and large customer segments,” Ness said. “That’s very encouraging.”


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