George Washington on a dollar (Image: Allison Bell/TA)

Unum Group says it could increase its reserves for long-term care insurance (LTCI) by up to $750 million, after tax, in the third quarter.

The Chattanooga, Tennessee-based insurer says the reserve increase would be the result of an annual LTCI reserve analysis process that’s under way now.

“When completed, this work will incorporate the company’s most recent experience and will include a review of all assumptions,” Unum said, in an item in its earnings release for the second quarter.

To conduct the review, Unum will use inside and outside data, and it will also use an outside consulting firm for quality assurance, and for comparing Unum with other companies in the LTCI sector, Unum said.

(Related: Policyholders Cling to Unum Long-Term Care Insurance Policiesy)

Although $750 million sounds like a lot of money, Unum generates about $11 billion in revenue per year.

The anticipated LTCI reserve increase should not affect Unum’s ability to buy back shares or to go ahead with other plans for deploying capital, Unum said.

In early 2015, Unum recorded a $698 million charge for the LTCI unit for the fourth quarter of 2014. The company noted earlier that it expected to record an LTCI reserve-related charge of $600 million to $800 million.

Unum now plans to spend about $100 million on buying back shares of its stock starting sometime after Sept. 30 and continuing into 2019, the company said.

“The company will continue to exercise strong and proactive management of the long-term care business by pursuing actuarially justified premium rate increases and ensuring appropriate levels of capital,” Unum said.

Earnings

Unum is reporting $286 million in net income for the second quarter on $2.9 billion in revenue, compared with $245 million in net income on $2.8 billion in revenue for the second quarter of 2017.

Overall commission payments increased to $274 million, from $261 million.

U.S. Disability

Unum is best known for its large U.S. group disability operation.

The group disability unit is reporting $82 million in adjusted operating income for the latest quarter on $744 million in revenue, compared with $92 million in net income on $740 million in revenue for the year-earlier quarter.

Commission spending increased to $45.4 million, from $44.9 million.

Sales of group long-term disability insurance fell to $41 million, from $47.5 million.

Sales of group short-term disability fell to $23.6 million, from $27.4 million.

Unum US Supplemental and Voluntary

Unum has been emphasizing sales of supplemental and voluntary products at the Unum US unit, in part because those products tend to be more resistant to low interest rates than disability insurance is.

The Unum US supplemental and voluntary unit is reporting $102 million in adjusted operating income on $440 million in revenue, up from $94 million in operating income on $424 million in revenue.

Commissions increased to $71.4 million, from $67.7 million.

Sales at the unit increased to $79 million, from $74 million.

Colonial Life

The Colonial Life worksite marketing arm is reporting $85 million in net income for the latest quarter on $446 million in revenue, up from $82 million in net income on $413 million in revenue.

Commissions increased to $91 million, from $85 million.

The unit’s sales increased to $132 million, from $117 million.

Executives say the addition of new dental vision and products helped increase sales of all of the unit’s products, in all market segments.

Resources

More information about Unum’s earnings, including a link to a recording of a Unum conference call with securities analysts, is available here.

— Read Unum Executives Take on the GE Questionon ThinkAdvisor.

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