Unum Group has agreed to provide $200 million to $250 million this year as part of the first phase of a 7-year program to add $2.1 billion of additional reserves to cover deficiencies identified by Maine regulators in Unum's long-term care insurance program.
The Chattanooga-based insurer said Monday that the Maine Bureau of Insurance determined that the reserves for Unum Life Insurance Co. of America were $2.1 billion below what is needed to cover all of the expected costs for its long term care (LTC) policies.
Unum no longer markets or sells long-term care insurance, but the company's book of LTC business continues to be costly. The long-term-care insurance industry has been hurt by persistently low interest rates, increasing longevity and the increase in health-care costs.
Unum said it expects to fund the extra reserves required for the long term care policies from its future cash flows.
The losses from such policies, combined with the economic uncertainty caused by the coronavirus pandemic, cut the after-tax adjusted operating income of Unum in the first quarter to $274.1 million, or $1.35 per common share, compared to $280.3 million, or $1.31 per share in the first quarter of 2019.
Per share earnings were higher this quarter because Unum bought back some of its stock in the past year. But the company is suspending future stock repurchases this year.
Unum said its net income in the first quarter of 2020 totaled $161 million, or 79 cents per share, compared to the net income of $280.9 million, or $1.31 per share, for the first quarter of 2019.
"While our first quarter results were solid, the emergence of the COVID-19 pandemic and resulting economic contraction have created uncertainty for both businesses and individuals worldwide," Unum CEO Rick McKenney said. "The current environment reinforces the importance of our corporate purpose, helping the working world thrive throughout life's moments, and we will remain focused on providing excellent service to people in their time of need."
McKenney said the agreement with the Maine Bureau of Insurance regarding funding the long-term care business "will build additional margin over our best estimates and should reduce market uncertainty over the block. "
Unum said it maintains a strong balance sheet and liquidity with holding company cash of $1 billion.
Unum's earnings were 3 cents per share below the average consensus of analysts and its revenues were 3.7%, or $180 million, short of what analysts had forecast for the company's first quarter.