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Unum to Add $2.1 Billion to Long-Term Care Insurance Reserves Over 7 Years

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Unum Group today announced that it has agreed with Maine insurance regulators to add $2.1 billion to its statutory reserves for long-term care insurance (LTCI) over seven years.

The company also hinted at how COVID-19 may be affecting the people who have been using long-term care insurance (LTCI) benefits to pay for care.

Resources

  • Links to Unum earnings resources are available here.
  • An article about Unum’s earnings for the fourth quarter of 2019 is available here.

The company mentioned briefly, in its earnings release for the first quarter, that the interest-adjusted loss ratio, or ratio of benefits payments to revenue, for its LTCI business fell to 81% in the latest quarter, from 88.5% in the first quarter of 2019.

The decrease was “driven primarily by higher claimant mortality,” Unum reported.

Unum did not give any more information in the release about details such as the number of deaths involved.

The Reserve Addition

Unum once sold large amounts of group LTCI coverage and some individual LTCI coverage. It stopped selling individual coverage in 2009, and it stopped selling group coverage in 2012.

Unum is still responsible for providing the benefits provided by the policies already sold.

Unum’s new agreement with Maine will affect the reserves set aside for LTCI, under state insurance regulators’ Statutory Accounting Principles rules, at Unum Life Insurance Company of America subsidiary, which has its official state of domicile in Maine.

Unum Life recorded $198 million in earned premiums in 2018 for providing individual LTCI for 104,000 people, and $352 million in earned premiums for providing group LTCI for about 806,000 people, according to a 2018 Unum Life annual statement posted on the California Department of Insurance website.

Unum Life was supporting the policies with $7.5 billion in reported policy reserves, according to the annual statement.

Unum Group said in the new earnings release that it will start increasing Unum Life’s statutory LTCI reserves by making a phase-in addition of $200 million to $250 million for 2020.

“This strengthening will be accomplished by our actuaries incorporating explicitly agreed upon margins into our existing assumptions for annual statutory reserve adequacy testing,” Unum Group said.

Unum reports on its earnings and reserves to investors using the Financial Accounting Standards Board’s U.S. Generally Accepted Accounting Principles (GAAP).

The Unum Life reserve addition will affect only Unum Life’s statutory reserves, not Unum Group’s GAAP long-term care insurance reserves or GAAP financial results, Unum Group said.

The Earnings

Unum Group is reporting $161 million in net income for the first quarter, under GAAP rules, on $2.9 billion in revenue, compared with $281 million in net income on $3 billion in revenue for the first quarter of 2019.

Premium revenue increased to $2.4 billion, from $2.3 billion, and net investment income fell just a little, to $585 million, from $595 million. But the latest results include a $144 net realized investment loss, compared with a $1.1 million gain for the year-earlier quarter.

Spending on commissions fell to $279 million, from $290 million.

Liquidity

Unum said it has about $1 billion in cash.

The company is suspending efforts to buy back shares of its own stock, but it said it intends to continue to pay its common stock dividend at the current rate. The company has been paying a quarterly dividend of 28.5 cents per common share.

Unum US

Unum US, Unum’s based company’s traditional group insurance unit, is reporting $262 million in adjusted operating income for the latest quarter on $1.7 billion in revenue, up from $252 million in adjusted operating income on $1.7 billion in revenue.

Commission spending fell to $154 million, from $163 million.

Here’s what happened to sales revenue for some key products between the year-earlier quarter and the latest quarter:

  • Group long-term disability: $31 million (down from $37 million)
  • Group short-term disability: $14 million (down from $21 million)
  • Group life and accidental death and dismemberment: $28 million (down from $41 million)

Colonial Life

Colonial Life, the worksite marketing unit, is reporting $81 million in adjusted operating income on $473 million in adjusted operating revenue, compared with $84 million in adjusted operating income on $457 million in adjusted operating revenue.

Commission spending fell to $93 million, from $94 million.

Here’s what happened to Colonial Life sales for several key products, year-over-year:

  • Accident, sickness and disability: $65 million (down from $72 million)
  • Life: $21 million (up from $20 million)
  • Cancer and critical illness: $14 million (down from $17 million)

Conference Call

Unum will be holding a conference call to go over its latest results with securities analysts at 8 a.m. Eastern Time Tuesday.

Unum will stream the call live through the web, and it will post a recording of the call after the call is over. A link the conference call system is available here.

— Read Molina Is Covering 950 People With COVID-19, on ThinkAdvisor.

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