Another Big Insurer Posts Another Big LTC Insurance Charge

Unum Group has given retail investors and asset managers a new reason to be wary of insurers with large amounts of exposure to long-term care insurance (LTCI) risk.

The company said Tuesday it is taking a $590 million after-tax GAAP charge following a review of its LTCI reserves, with an impact to statutory reserves of about $200 million on a before-tax basis.

Unum said in a presentation accompanying its press release it has mostly finished its ongoing review, but will formally end it as part of third-quarter earnings, scheduled for Oct. 24.

Unum stopped selling individual LTCI coverage in 2009 and group LTCI in 2011.

Unum’s LTCI policy lapse rate is 0.25%. That’s a lower rate than the industry average, according to the company’s presentation. More policyholders are keeping their policies, and that could push up claim costs.

Analysts at Evercore ISI question whether Unum has vanquished its LTCI reserves issue.

For the Evercore analysts, one area of concern is the $1.4 billion in future rate increases Unum now has baked into its reserves.

“While UNM’s main point of contention …  is that its LTC block has lower risk due to the lower risk characteristics in its group block, the plan to file for $1B of future rate increases for this block would appear to contradict this point, as regulators are only likely to approve this level of rate if UNM can conclusively demonstrate a fair degree of deterioration in this block,” the Evercore team stated Tuesday in a research note.

Evercore analysts left the company’s conference call and a lunch meeting with executives with a sense that Unum was “not declaring victory,” and warned that Unum might “need to take additional charges as experience develops.”

In a later note, Evercore lead insurance analyst Thomas Gallagher wrote that Unum still assumes that the “morbidity” of its LTCI policyholders, or the likelihood that the policyholders will need care, will improve.

That’s an aggressive assumption, Gallagher wrote.

Companies that leave health improvement out of LTCI reserve calculations are better-positioned, he said.

Unum is the latest insurer to increase reserves after examining its LTCI block.

GE Capital announced in January that it would increase its LTCI reinsurance reserves by $15 billion over seven years.

Prudential recently increased its LTCI reserves by $1.4 billion, to protect itself against the possibility that the health of its LTCI policyholders may not improve as much as the company had originally assumed.