Filed Under:Health Insurance, Disability

Unum's Halt of New LTC Sales a Credit Positive, Says Moody's

Unum Group’s decision announced last week to exit new sales of group long-term care (LTC) insurance during the first quarter of 2012 is credit positive for the company, Moody’s stated, citing potential growing risks and losses from this business line.

Unum is not alone—just another victim of industry trends and lower interest rates.

Last Monday, Unum Group announced that it will discontinue new sales of group long-term care (LTC) insurance during the first quarter of 2012. See: 

Unum, best known as a disability insurer, reported a $425 million net loss for the fourth quarter of 2011 on $2.6 billion in revenue, compared with $226 million in net income on $2.6 billion in revenue for the fourth quarter of 2010.

The company had increased policy and claim reserves by about $574 million, and said about $280 million of the increase in reserves is due to the effects of the current ultra-low interest rate environment on investment earnings.

Exiting LTC has become an industry and life expectancy trends as other companies, including Guardian Life Insurance Co. and MetLife have put their LTC business into runoff within the last year or so ,as Moody’s noted.

Unum increased reserves on its existing book of business in fourth-quarter 2011 to reflect a more prolonged low interest rate environment, lower expected lapses, increased expected longevity and worsening morbidity.

Unum’s exit from the group side of the business follows its 2009 decision to discontinue individual LTC sales.

Many companies with older blocks of LTC continue to grapple with a drag on returns on capital resulting from poor LTC performance.

Moody’s did state that although it will be limiting its exposure to additional earnings and capital pressure with the exit from the business, it will still face challenges in managing the closed block of LTC, particularly if interest rates remain low or frequency and severity of claims worsen.

Regulators are also a factor, because they need to approve price increases.

Most LTC players have sought sizable rate increases from regulators because original pricing has been insufficient to support current actuarial assumptions, and regulators are wary of price increases when it so directly impacts the consumers they serve.

Since LTC represented less than 5% of Unum’s operating earnings, the decision to withdraw from the market will not have a material impact on Unum’s overall credit profile, although it will cap the company’s exposure, Moody’s stated.

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