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

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.