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Unum Says It Can Afford a Big LTCI Reserve Increase

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Executives from Unum Group say they believe that their company’s long-term care insurance (LTCI) reserves are already adequate.

But they said Tuesday, during a conference call with securities analysts, that they have agreed with state insurance regulators to add $2.1 billion in reserves over seven years, and to make a number of LTCI reserving assumptions more conservative.


Unum will update its assumptions about interest rates, morbidity improvement, and how long people over age 90 can expect to live.

For interest rates, for example, Unum is cutting its discount rate assumption by about 0.5 of a percentage point, according to Steven Zabel, Unum’s chief financial officer,

The Chattanooga, Tennessee-based insurer announced the LTCI reserve addition Monday. The addition affects Unum Life Insurance Company of America, a subsidiary that has its official state of domicile in Maine.

Zabel said during the analyst call that Maine insurance regulators brought in outside consulting actuaries to examine Unum and reach their own conclusions about Unum Life’s LTCI reserves.

“Those conclusions were agreed to by the other regulators in the country,” Zabel said “So, we view this as being a final resolution for all states, not just Maine, as it relates to our Unum America reserves.”

Company executives said Unum will make the first reserve addition, for $200 million to $250 million, by the end of this year, then might contribute about $300 million per year to the LTCI reserves every year for six years.

“We plan to fund these additional reserves through adjusted cash flows,” Rick McKenney, Unum’s chief executive officer, said.

Unum should be able to generate more than enough cash flow to beef up the LTCI operation’s reserves, even under a stress scenario brought on by the current economic downturn, Zabel said.

COVID-19 and Operations

Unum executives also talked about COVID-19 during the call.

About 99% of Unum’s workers are now working from home, and the company is also reallocating workers to help prevent and resolve problems with the flow of documents needed to process disability insurance claims and other benefits claims, McKenney said.

Unum has also increased the amount of cash it has to about $1 billion, up from $863 million at the end of 2019, and up from the usual target level of about $400 million, Zabel said.


Unum U.S. sales were down about 15% in March, and sales continued to be soft in April, Zabel said.

Most large and midsize employers kept traditional group coverage in place, but some small businesses dropped their coverage, and sales of voluntary benefits products faced pressure, Zabel said.


Claims were mostly good and in-line with expectations, Zabel said.

COVID-19 contributed to a significant increase in short-term disability insurance claims in March, but group life benefits ratios were better than expected, Zabel said.

“We don’t expect to see a material impact on claims trends from either COVID or the recession,” Zabel said. “We believe the impacts of COVID will be much less about the claims-related activity we will experience and more about the impact from the economy the significant increase in unemployment.”

Disability Insurance and Rising Unemployment

One rule of thumb is that a weak job market tends to lead to an increase in disability claims.

Mike Simonds, Unum’s chief operating officer, said the company has looked into that and found that rising unemployment does correspond with an increase in people qualifying for Social Security Disability Insurance, but not much, if at all, for private disability insurance.

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