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Executives from Unum Group spent much of their company’s latest earnings release conference call reassuring securities analysts about the health of the company’s large closed block of long-term care insurance (LTCI) business.

The Chattanooga, Tennessee-based company is reporting $267 million in net income for the fourth quarter of 2017 on $2.8 billion in revenue, compared with $248 million in net income for the fourth quarter of 2016.

The company is best known in the United States for its Unum US group disability insurance operations and its Colonial Life worksite marketing unit. It continues to manage large blocks of in-force LTCI, and of individual disability insurance policies, at a closed-block unit.

General Electric Company recently announced that it will have to add $15 billion to the LTCI reserves at its reinsurance business, to adjust for problems with past assumptions about what policy lapses and claims might look like.

(Related: GE’s Surprise $15 Billion Shortfall Was 14 Years in the Making)

Richard McKenney, Unum’s president, told analysts that Unum has had 10 actuaries working full-time on its LTCI block since 2012, and has actively and aggressively managed that block of business.

“We feel we’re in a very different place than GE is,” McKenney said.

Sales Results

At Unum US, overall sales jumped 29%, and commission payments rose 5.8%, to $149 million.

A new New York state law that requires employers there to offer paid family leave pushed group short-term disability insurance sales up 58%.

At the Colonial Life unit, sales rose 10%, to $200 million. Commission payments increased 9.2%, to $88 million.

Colonial Life sales of cancer insurance and critical illness insurance policies were especially strong. For those products, sales revenue climbed 24%, to $39 million.

For all U.S. operations, commission payments increased 5.9%, to $258 million.

LTCI Questions

At Unum’s closed LTCI block, premium revenue held steady at about $162 million.

The interest-adjusted loss ratio increased to 93.1%, from 89.1%.

Persistency, or the likelihood that a consumer would keep LTCI coverage in place, increased to 95.9%, from 94.8%.

Executives said that the loss ratio was within expectations, and that it appears to be up because of fluctuations in how long policyholders, and insureds collecting benefits, live. At this point, executive said, it’s not clear whether the insureds are really living longer or whether the mortality figures simply reflect ordinary volatility in mortality rates. 

At least six securities analysts asked Unum executives about the LTCI block.

McKenney said the Unum LTCI block is much different from the GE block, for the following reasons:

Unum wrote the LTCI coverage itself, rather than assuming responsibility for coverage from other insurers, and it knows how the coverage was designed and underwritten.

Most of the insureds have group LTCI coverage, and they tend to be younger than the holders of individual coverage, with tighter restrictions on use of coverage and lower benefits levels.

Unum has reviewed reserving levels regularly and has already added $4 billion to the LTCI block reserves.

When the company completed its latest LTCI reserve review, in 2017, the reserves looked fine.

Unum still has LTCI rate increase applications in the pipeline, and it has not included extra revenue from those increase requests in reserve calculations. Any extra revenue from new LTCI rate increases will add to the company’s cushion against new claim expense concerns.

CORRECTION: An earlier version of this article described Unum’s current products incorrectly. Unum continues to sell new individual disability insurance policies in the United States.

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