A handshake (Credit: iStock)

Unum Group is putting responsibility for a large block of older individual disability insurance policies in the hands of Global Atlantic Financial Group Ltd.

The companies today announced an agreement that calls for a subsidiary of Global Atlantic to reinsure the individual disability insurance policies through a coinsurance arrangement.

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The policies involved are part of what Unum calls its closed individual disability insurance block. The policies are backed by about $7.1 billion in reserves.

Unum will continue to administer the individual disability insurance policies involved in the transaction, the company said.

The Deal

Unum said it will pay Global Atlantic a “ceding commission,” or fee, of about $376 million in December to reinsure about 75% of the in-force policies in the closed block.

The companies have approval from regulators to reinsure all of the policies on track to be involved in the arrangement, but Unum is seeking permission from the original writers of some policies originally written by other companies to make those policies part of the deal. Unum plans to get a reinsurance arrangement with Global Atlantic for the other policies in place by March 31. The size of the ceding commission for that part of the deal will depend on how many parties agree to have Global Atlantic reinsure their blocks of business, Unum said.

About 95% of the policyholders affected are collecting benefits from their policies, but 5% are still able-bodied and are not on claim.

Unum will buffer Global Atlantic against volatility in the performance of the “active lives” policies in the closed block for 12 years, the companies said.

Global Atlantic said it will be invested alongside any outside entities that put money in it’s Ivy co-investment vehicle.

Unum plans to keep responsibility for a block of “multi-life” individual disability insurance policies, or individual disability insurance policies sold at the worksite. Those policies are an  important part of the company’s core growth strategy, it stated.

“The company will also retain certain closed block [individual disability insurance] business not reinsured as part of the transaction, as well as certain assets with yields exceeding current market levels, which will support yields for other product lines, including long-term care,” Unum said.

The Strategy

Manu Sareen, president of Global Atlantic’s Institutional business, commented that the company is pleased to be working with Unum. “This is a seasoned run-off block of business with a rich history of data and stability of cash flows that are very attractive to Global Atlantic,” he said.

Once Unum completes both parts of the reinsurance deal with Global Atlantic, Unum should be able to free about $600 million of the capital supporting the closed block of individual disability policies, it said.

Richard McKenney, Unum CEO, said that the deal will help Unum take meaningful steps toward increasing its financial flexibility and focusing on more capital-efficient businesses.

“Looking forward, we remain focused on delivering growth in our core businesses while continuing to pursue additional opportunities to optimize our capital and balance sheet for long-term shareholder value,” McKenney said.

The Companies

Unum is a Chattanooga, Tennessee-based insurer that’s been a major of individual and group disability insurance in its own right. It has also acquired other writers of disability insurance and other products over the years. Its Colonial Life unit is a large player in the worksite benefits market.

The Unum subsidiaries ceding individual disability business to Global Atlantic are Provident Life and Accident Insurance Company, The Paul Revere Life Insurance Company and Unum Life Insurance Company of America.

Global Atlantic is a Hamilton, Bermuda-based company that has been focusing on selling life insurance and annuities, and reinsuring other companies’ business, in North America.

Global Atlantic made an annuity reinsurance deal involving about $5.7 billion in reserves with Great American in October, and it made a deal involving $1.7 billion in fixed annuity account balances with Ameriprise in March 2019.

KKR & Co. Inc. agreed to acquire Global Atlantic in July. The companies hope to close on that deal early in 2021.

The Global Atlantic subsidiary implementing the disability insurance reinsurance arrangement with Unum is Commonwealth Annuity and Life Insurance Company, a company that has its official state of domicile in Massachusetts.

Commonwealth will maintain over-collateralized trust accounts to secure the reinsurance obligations, Unum said.

Unum’s Outlook Meeting

In related news, Unum executives held a 2021 outlook web meeting today.

Unum executives said the company now expects to make a total of $450 million to $475 million in capital contributions to support the LTCI block for 2020., down from an earlier contribution estimate of $550 million to $600 million, according to the meeting slidedeck.

Executives also talked about the effects of COVID-19 on insureds:

Dental Plans: Pandemic-related lockdowns kept many people from seeing the dentist in the second quarter — from April 1 through June 30, and that cut Unum dental insurance unit spending on claims. Dental care utilization returned to normal in the third quarter.

Group Life Insurance: Unum has been providing group life coverage for about 1% of the U.S. residents who have died from COVID-19. The average COVID-19-related claim has been for bout $50,000.

Long-Term Care Insurance: COVID-19 increased the death rate for people using Unum LTCI coverage to pay for long-term care by about 30% over the expected level in the second quarter, and by about 15% in the third quarter.

Clarification: The state of regulatory approvals was described in an unclear way in an earlier version of this article. Regulatory approvals have been granted for all of the policies slated to be part of both phases of the transaction, according to Unum.

— Read Global Atlantic Reinsures $5.7 Billion in Great American Annuitieson ThinkAdvisor.

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