Unum Finds Reinsurer for Block of Individual Long-Term Care Policies

McKenney said that Unum is having "ongoing discussions" with other reinsurers interested in reinsuring other bocks of Unum LTCI business.

What it means: Reinsurers once saw blocks of long-term care insurance business as a frightening hot potato.

Direct writers who had troubled blocks of LTCI business and wanted someone else to manage the blocks, and even direct writers with profitable LTCI blocks that were tired of getting suspicious questions about their LTCI blocks from regulators, rating agencies and securities analysts, had a hard time passing LTCI risk on to other parties. Lack of reinsurance access may have slowed efforts to resurrect efforts to revive sales of new stand-alone LTCI policies or similar types of policies.

Now, reinsurers have announced a series of big LTCI reinsurance deals.

Global Atlantic agreed to reinsure a big block of LTCI business for Manulife's John Hancock unit in December 2023. Reinsurance Group of America made a deal with Manulife that included reinsurance for another big block of John Hancock LTCI business in November 2024. Genworth appears to be close to setting up a reinsurance deal that would support efforts by a new subsidiary, Care Scout Long-Term Care Insurance, to write new LTCI policies.

The new Unum deal could increase insurers' comfort with continuing or reviving active sales of LTCI policies.

The history: Insurers, including insurers that are now part of Unum, formed big individual and group LTCI operations in the 1990s, inspired by a belief that as baby boomers aged they would need help paying for home care, nursing home care and assisted living facility care.

LTCI issuers were right that boomers needed care, but they got many other assumptions wrong. In 2001, consumer groups persuaded insurance regulators to impose strict limits on insurers' efforts to increase LTCI premiums. The insurers had to get through a difficult process to get premium increases approved, and the restrictions limited the insurers' ability to correct their product design and pricing errors.

Most issuers fled from the market. Unum stopped writing new individual LTCI coverage in 2009 and stopped writing new group LTCI coverage to employers in 2012. Most issuers have imposed big premium increases on the insureds.

At one point, Maine regulators told Unum it had to add $2.1 billion to its statutory reserves for LTCI policies. Since then, Unum has added to the reserves and updated how it tracks the performance of the assumptions it used to design and price its LTCI policies. Fitch, for example, affirmed the company's strong A insurer financial strength rating in September and changed the outlook on the rating to positive, from stable.

The parties: Unum is best known in the United States as an issuer of products like disability insurance, life insurance, critical illness insurance and dental insurance through its Unum and Colonial Life businesses. It reported $13 billion in revenue in 2024.

Fortitude Re is a Bermuda-based reinsurer controlled by a group of investors that includes Carlyle, a big investment firm, and T&D Holdings, a Japanese financial services company.

The policies: A conference call presentation shows that the average issue date for the LTCI policies involved in the Fortitude Re deal agreement is 2000. The average age of the insureds who have not yet filed claims, or "active lives," is 86. The average annual premium is $2,490, and the policyholders have filed 5,121 claims.

About 34% of the policyholders bought policies with lifetime benefits, and 51% bought policies with some level of compound inflation protection.

Unum still has 85,000 individual life policies on its books, and those have an average issue date of 2002 and an average annual premium of $2,220. The average age for active lives in that block is 75, and the policyholders have filed 44,545 claims. About 39% have lifetime benefits, and 51% have compound inflation protection.

In the group LTCI block, the average issue date is 2024, the average annual premium is $553 and the average age of active lives is 56. The group LTCI policyholders have filed 21,953 claims.

The deal: The agreement calls for Unum to pay Fortitude Re $430 million for the transaction.

Unum and its insurance company subsidiaries would continue to administer and service the policies. If the LTCI premiums increase, Fortitude Re would pay Unum some refunds based the policies' improved performance.

Fortitude Re would focus on asset-related risk and have another company take responsibility for the "biometric risk," or health risk, associated with the policies. The company did not name the "retrocessionaire," or provider of reinsurance for a reinsurer.

The language about use of an unnamed retrocessionaire for health risk appears to be similar to the language that Global Atlantic used when it agreed to the 2024 LTCI reinsurance deal with Manulife.

Like other "direct writers" that make reinsurance arrangements, Unum would still be responsible for ensuring that the claims involved in the reinsurance arrangement were paid.

The thinking: Executives said the deal should improve Unum's cash total by about $500 million, thanks to freed capital, tax benefits and the likelihood that the new arrangement will help Unum's ratings.

The deal will also make the performance of the LTCI block less of a distraction for Unum executives, and a reinsurer's willingness to reinsure the LTCI block provides independent validation that the assumptions Unum is using to manage the block are reasonable, executives said.

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