U.S. disability insurers continued to tack against low-interest-rate headwinds in the fourth quarter.
Some performance figures were higher, and some were lower.
When Unum Group Inc. (NYSE:UNM), a major disability insurance provider, held a conference call with securities analysts to go over fourth-quarter results, most questions about the disability business had to do with interest rates and portfolio yields, not with claims, or the underlying demand for disability coverage.
Executives at a major competitor, StanCorp Financial Group Inc. (NYSE:SFG), said nothing about U.S. disability market conditions during a conference call. That company is in the process of being acquired by Meiji Yasuda Life Insurance Company of Japan. Like several of the other insurers now in the process of being acquired, StanCorp has stopped holding quarterly earnings calls.
Unum — the parent of the Colonial Life worksite marketing business in the United States and a large disability insurance business in the United Kingdom as well as a large U.S. group benefits business — is reporting a total of $226 million in net income for the fourth quarter on $2.7 billion in revenue, compared with a net loss of $282 million on $2.6 billion in revenue for the fourth quarter of 2014.
Unum took a charge in the fourth quarter of 2014 to account for a big increase in long-term care insurance (LTCI) reserves and other reserves. The company’s operating income, which excludes the effects of that charge, fell to $322 million, from $327 million in the year-earlier quarter.
StanCorp is reporting $39 million in net income for the fourth quarter on $740 million in revenue, compared with $52 million in net income on $699 million in revenue for the fourth quarter of 2014.
For a look at some of what Unum executives said about U.S. disability operations during that company’s conference call, and what both companies said in their earnings releases, read on.
1. Disability unit numbers:
Unum’s U.S. unit is reporting $66.1 million in operating income for the fourth quarter of 2015 on $571 million in premium income, up from $65.9 million in operating income on $541 million in premium income for the year-earlier quarter.
Sales of group long-term disability (LTD) insurance held steady at about $116 million.
Sales of group short-term disability (STD) insurance fell 20 percent, to $48 million.
Insurers depend heavily on long-term investments, mostly in fixed-income securities, to generate the cash used to support long-term benefits obligations.
Net investment income fell to $125 million in the fourth quarter, from $132 million in the year-earlier quarter.
At StanCorp, LTD premium revenue rose to $199 million, from $188 million, and STD premium revenue rose $63 million, from $52 million.
LTD sales rose to $31 million, from $26 million, while STD sales rose to $16 million, from $13 million.
StanCorp’s individual disability business is reporting $8.3 million in income before income taxes on $68 million in revenue, compared with $16 million in income before taxes on $65 million in revenue for the year-earlier quarter.
Annualized new sales fell to $5.2 million, from $5.7 million.
2. Producer compensation spending seems to be increasing.
The Unum U.S. business as a whole paid $66 million in commissions to agents and brokers in the latest quarter, up from $63 million in the year-earlier quarter.
Commission spending at Colonial Life rose to $76 million, from $71 million.
StanCorp benefits unit paid $40 million in commissions and bonuses in the fourth quarter, up from $83 million.
Producer comp spending at the company’s individual disability unit held steady at about $12 million.
Unum executives did not talk much about the U.S. group benefits sales environment, except to say that results involving large-group sales tend to be volatile. Timothy Arnold, a Colonial Life executive, said during Unum’s conference call that the changes resulting from the Patient Protection and Affordable Care Act (PPACA) and increases in employer health plan deductibles seem to be increasing sales of supplemental products sold at the worksite.
See also: Disability insurers seek eye contact
3. The interest rate picture is not improving enough to get anyone dancing.
The Federal Reserve Board has started to nudge the benchmark rates it controls slightly higher, after years of decreasing rates or holding them steady.
But Unum’s overall earned book yield fell to 5.40 percent as of Dec. 31, 2015, from 5.52 percent a year earlier.
StanCorp’s overall portfolio yield on fixed maturity securities fell to 3.98 percent, from 3.99 percent, and its net yield on commercial mortgage loans fell to 5.31 percent, from 5.61 percent.
During the Unum conference call, analysts asked few questions about benefits market conditions, none about agents or other distributors, and many about interest rates.
Jack McGarry, Unum’s chief financial officer, said during the call that yields on newly invested money were slightly higher in the fourth quarter than they were earlier in the year.
“However,” McGarry said, “to date, new money yields remain below our current portfolio yields, so the downward pressure on our portfolio yields and net investment income continues to impact our profitability. We’re actively raising prices in our markets to help manage this impact.”
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