Policyholders Cling to Unum Long-Term Care Insurance Policies

To see our Unum first-quarter commission spending data cards, click on the arrow on the right side of the gallery box above.

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Unum Group is continuing to increase long-term care insurance (LTCI) premiums, but typical LTCI coverage holders like their coverage enough to keep it anyway.

Executives from the Chattanooga, Tennessee-based insurer talked about higher-than-expected persistency at its closed LTCI block Wednesday, at a conference call the company held to go over first-quarter earnings.

(Related: 5 Peeks Inside Unum, for Agents)

Unum is best known as an issuer of group disability insurance plans. In recent years, it has diversified by building large voluntary sales at its Unum US unit, and large voluntary and worksite sales at its Colonial Life unit. But the company also has a large block of LTCI policies on its books.

Unum refers to the LTCI policies as part of a “closed block” because the company stopped selling new individual LTCI coverage in 2009, and it stopped selling new group LTCI in 2012.

Insurers like to see high persistency levels for ordinary insurance products. But many insurers, including Unum, are worried about future LTCI claims costs. Because of that, they see an increase in the number of LTCI coverage holders who drop their coverage as a reduction in claim risk.

The percentage of Unum LTCI coverage holders who kept their coverage increased to 95.7% in the first quarter, from 95.1% in the first quarter of 2017, according to a Unum financial supplement.

The death rate for people getting Unum LTCI benefits increased in the first quarter, and that helped the LTCI block’s ratio of benefits payments to revenue, but the number of people who dropped their coverage fell, and that hurt the LTCI loss ratio, Jack McGarry, Unum’s chief financial officer, said during the conference call.

“We continue to see good overall trends with our long-term care rate increase program,” McGarry said.

But getting the LTCI rate increase approvals has taken longer than Unum had originally hoped, and the increases approved have been phased in over a longer period of time than originally expected, McGarry said.

McGarry said another challenge for the LTCI block is the current slow pace of increases in interest rates. Rates have now been low for years.

At this point, he said, the rates Unum is getting on newly invested money are higher than the rates built into Unum’s LTCI pricing assumptions.

“However, we’re getting closer to the time when these new-money yield assumptions will begin to grade higher,” McGarry said. “This remains a watch area.”

Unum’s Earnings

Unum as a whole reported $273 million in net income for the first quarter on $2.9 billion in revenue, up from $230 million in net income on $2.8 billion in revenue for the year-earlier quarter.

The Unum US unit is reporting $244 million in earnings on $1.7 billion in revenue, up from $239 million in earnings on $1.6 billion in revenue.

The Colonial Life unit is reporting $81 million in earnings on $355 million in revenue, compared with $82. million in earnings on $327 million in revenue.

LTCI premium revenue fell to $161 million, from $163 million.

U.S. Sales

At Unum US:

Group long-term disability (LTD) insurance sales fell 16%, to $30 million.
Group short-term disability (STD) insurance sales fell 3.6%, to $16 million.
Group life and accidental death and dismemberment (AD&D) sales increased 20%, to $45 million.
Individual disability sales rose 10.5%, to $18 million.
Unum US unit voluntary benefits sales increased 4.2%, to $154 million.
Unum US dental and vision sales increased 23%, to $12 million.

At the Colonial Life unit, sales increased 7.6%, to $104 million. Life sales increased just 1.9%, to $21 million. Sales of cancer and critical illness insurance increased 14%, to $16 million.

For figures for U.S. spending on agent commissions, see the data cards in the gallery above.

Executive Comments

LTCI: All LTCI issuers are getting more questions from securities analysts because of the recent announcement that General Electric will have to add $15 billion to reserves for its LTCI reinsurance business.

McGarry said during the conference call that Unum is not GE.

“There are many differences between us and GE,” McGarry said. “The difference between being a direct writer and a reinsurer, the difference between the age of our business, the fact that more than half of our business, and an increasing share of our business, is in the group long-term care space, as opposed to the individual long-term care space.”

Group LTCI plans very different from individual LTCI policies, because the plan designs and lapse assumptions have been very conservative, McGarry said.

Unum has also conducted major assumption reviews in 2011 and 2011, and smaller reviews on an annual basis, McGarry said.

Vision and dental: Unum acquired Starmount Life, a dental and vision products issuer, in 2016. Unum has been making the Starmount products available to the agents and brokers in its distribution network. Executives said several times that they’re happy with the growth in dental and vision sales.

Midsize market: Mike Simonds, the president of Unum US, said in a response to an analyst question that the competition in the market for group insurance for midsize employers seems to be especially intense. The typical midsize employer that shifted to another carrier had claims totals that were more than 5% higher than the premium totals, Simonds said.

Stop-loss insurance: Unum recently introduced an employer health plan stop-loss program, or insurance program for employers that self-insure their own health plans. Executives said nothing about that program during the conference call, and Unum said nothing about the program in its earnings release or its earnings supplement. The company mentioned the launch of the stop-loss program in its formal 10-Q quarterly report, but it did not give any sales figures or other performance figures for the program.

— Read Unum Wants More Colonial Life Agents in More Territories on ThinkAdvisor.

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