U.S. 10-year Treasury note yields fell off a cliff this summer, then sank to the center of the earth, and now are, roughly, at the bottom of a mineshaft within shouting range of the surface of the earth.
Executives from Genworth Financial Inc., Unum Group and CNO Financial Group Inc. have so much going on that, although their companies all sell interest-sensitive products, they’ve talked only briefly about interest rates and investment portfolio yields during their companies’ latest earnings calls.
All three companies have based their operations on strategies that involve something other than selling life insurance and annuities to high-income people.
Genworth sells mortgage insurance and has been a major issuers of long-term care insurance (LTCI), along with being a significant issuer of life insurance and annuities.
Unum is best known for its disability insurance and voluntary benefits operations. It also has a large block of group LTCI business.
CNO is known for selling life and health products aimed at middle-income consumers. Its Bankers Life unit continues to write new LTCI coverage, along with short-term care insurance policies and other types of business.
Here’s a look at the companies’ earnings for the third quarter, along with some of what the companies’ executives said during the conference calls the companies to go over the third-quarter results.
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Genworth Financial Inc., Richmond, Virginia (Stock symbol: GNW)
Genworth is reporting $58 million in net income for the latest quarter on $2 billion in revenue, compared with $210 million in net income on $2 billion in revenue for the third quarter of 2018.
Operating income at the LTCI unit increased to $21 million, from a net loss of $24 million.
Genworth has been trying to get itself acquired by China Oceanwide Holdings Group Co. Ltd.
Consummating the deal has taken so long that Genworth now has to get some regulators to update their deal approvals, executives said during the Genworth conference call.
For agents, the bigger story coming out of the call might be that Genworth is thinking about increasing rates for a relatively new block of LTCI policies, the Choice 2 policy block.
Genworth and other LTCI issuers have been imposing large LTCI premium rate increases, because of concerns that claims look as if they will be much higher than expected. Newer policies were developed under tougher price-setting rules, and issuers have emphasized that they believe the rates for the newer policies should be more stable.
Kelly Groh, Genworth’s chief financial officer, and Thomas McInerney, Genworth’s president, said the company now has received from about 11,000 of the 400,000 Choice 1 and Choice 2 policyholders.
The average age of those policyholders is relatively young — only around 69 or 70 — but claim counts appear to be higher than expected, the executives said.
McInerney said Genworth is still deciding whether the high level of Choice policy claims is statistically significant.
If the high level claims reflects a real trend, not a fluke, then Genworth will apply for a rate increase quickly, McInerney said.
“One of the things that they’ve learned and we’ve learned over the last many years is applying for premium increases sooner is better for policyholders because the overall increase is less,” McInerney said. “If you go sooner, you collect more premiums along the way. And it’s better for the regulators, because they ultimately have to approve lower ultimate premium increases.”
Groh also told the analysts that some LTCI policyholders are loosening their grip on their benefits. Many have held on to their full benefits year after year, even after facing multiple rounds of rate increases.
Now, some policyholders are accepting lower levels of benefits in exchange for holding down premium payments, Groh said.
“We expect a meaningful level of reserve releases from long-term care benefit reductions, associated with the premium rate increases to continue as we go into 2020 and implement the larger in-force rate actions achieved in 2018 and 2019,” Groh said. “However, it is difficult to predict policyholder behavior, and the level of reduced benefit options may vary from quarter to quarter.”
Unum Group, Chattanooga, Tennessee (Stock symbol: UNM)
Unum is reporting $242 million in net income for the latest quarter on $3 billion in revenue, compared with a $285 million net loss on $2.9 billion in revenue for the third quarter of 2018.
Sales commission spending increased to $278 million, from $277 million.
The Unum US unit is reporting $261 million in adjusted operating income on $1.7 billion in revenue, compared with $271 million in adjusted operating income on $1.7 billion in revenue for the year-earlier quarter.
Unum US commission spending increased to $155 million, from $154 million.
The Colonial Life worksite marketing unit is reporting $87 million in adjusted operating income on $458 million in revenue, up from $84 million in adjusted operating income on $437 million in revenue.
Commissions there fell to $91 million, from $92 million.
Here’s what happened to sales of some types of products:
- Group Long-Term Disability: $24 million (down from $25 million)
- Group Short-Term Disability: $20 million (up from $18 million)
- Group Life and Accidental Death and Dismemberment: $31 million (up from $29 million
- Accident, Sickness and Disability: $79 million (up from $77 million)
- Life: Held steady at about $24 million
- Cancer and Critical Illness: $18 million (down from $19 million)
Executives said during the company’s earnings call that the sales environment has been very competitive, especially in the market for voluntary and worksite benefits programs at large employers.
Timothy Arnold, president of Colonial Life, said he believes the market for employers with fewer than 100 employees is still underserved, and that he still sees a tremendous amount of opportunity in offering benefits to smaller cases.
In the large-employer market, “we do see some competitors behaving in that segment in ways that we think may not be sustainable longer term,” Arnold said.
Thomas White, a senior vice president, said Unum is trying to respond by adjusting agent recruiting, and by improving agents’ lead-generation and customer relationship management systems.
CNO Financial Group Inc., Carmel, Indiana (Stock symbol: CNO)
CNO is reporting $42 million in net income for the latest quarter on $944 million in revenue, compared with a $530 million net loss on $1.5 billion in revenue for the year-earlier quarter.
Bankers Life’s first-year collected premiums for LTCI increased to $4.8 million, from $3.9 million, although new annualized premiums fell to $6.4 million from $6.5 million.
Here’s what happened to new annualized premiums for some other products:
- Medicare supplement: Held steady at $14 million.
- Life: $15.3 million (down from $15.8 million)
- Supplemental health: $25 million (up from $23 million)
- Life: $2.8 million (up from $2.5 million)
Gary Bhojwani, CNO’s chief executive officer, said the company has been trying to recruit fewer but more productive agents.
The number of new agents has been down, but the actual number of producing agents is up 2%, which means that more first-year agents are sticking with the company, Bhojwani said.
Low interest rates make selling annuity sales hard, but getting agents licensed as financial advisors has helped increase annuity sales, in spite of the low rates, Bhojwani said.
Only about 14% of the agents are licensed as advisors, but the agent-advisors account for about half of CNO’s annuity sales, and the average value of the contracts they sell is 20% higher than the company-wide average, Bhojwani said.
Bhojwani reported that the company’s health insurance sales help bring in sales of other products: about one-third of the Medicare supplement insurance purchasers buy something else from CNO.
Bhojwani noted that, in addition to low interest rates, one challenge CNO is facing is the weak state of the economy on U.S. farms and in rural communities.
Trade tensions between the United States and China have sent the prices of crops such as corn and soybeans plummeting, and the low crop prices have hurt the farmers’ finances.
Correction: Timothy Arnold’s role was described in correctly in an earlier version of this article. Timothy is the president of Unum’s Colonial Life unit.
— Read 3 Things Unum and CNO Said About You, on ThinkAdvisor.