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)