4Q Earnings Wrap: Tax Reform, Benefits Payments and LTC

By Cyril Tuohy

With the first of this quarter’s crop of life insurer earnings besting expectations and forecasts for stronger earnings ahead, there was plenty for life insurance executives to share this week with industry analysts.

Executives from Aflac, American Financial Group, Lincoln Financial and Unum on Thursday spoke about tax reform, benefits payments, a brutal flu season and product development and distribution.

The insight will yield clues about what analysts can expect as they await earnings reports from American Equity Investment Life, Prudential Financial, Torchmark and FBL Financial next week.

Tax Reform

Lower corporate tax rates will free up cash for life insurers to return to shareholders or to reinvest in products, services and employees, executives said.

Aflac, which has said it would invest as much as $250 million in the company’s U.S. operations over the next three to five years, would invest some of the windfall toward digital and technology advancements, said CFO Frederick J. Crawford.

Other investments could go toward distribution and alternative distribution with the goal of furthering sales and premium growth, he said.

Tax reform has also changed rates for individual workers and buyers of individual or group policies and from the perspective of the retail buyer.

“I think it’s going to take a while for people to understand what it really means,” said Dennis R. Glass, president and CEO of Lincoln Financial.

Workers should see more cash in their paychecks beginning this month. But when tax preparers and advisors begin to eliminate deductions, only then will we have a better idea of how taxpayers are affected by tax law changes.

“So we’re paying attention to our financial advisers and what they’re hearing from their customers,” he said. “But I think the whole individual tax rate is not settled in at this point and consumers are not taking action just yet.”

Annuity Benefits Payments

Is there a chance that Lincoln Financial could face the same issues faced by MetLife related to benefits payments and its group annuity business, Lincoln President and CEO Dennis R. Glass was asked by an analyst.

None, said Glass, whose company closed 2017 in very strong financial position. “We’re primarily in the business of accumulation annuities,” Glass said.

“Any payment issues we would have were dealt with a few years ago when we went through the unclaimed property process,” Glass said. “We’ve invested significantly in our ability to make sure that everybody is getting the dollars they are owed by Lincoln, and so have no expectations of an impact here.”

MetLife, which has scheduled its four-quarter conference call for Feb. 14, said that it would bolster reserves by as much as $575 million to make up for unrecorded pension liabilities as part of its pension risk transfer and group annuity business.

Company managers issued the statement after undertaking a review of practices and procedures used to estimate reserves related to the company’s Retirement and Income Solutions group annuitants who have been “unresponsive or missing over time.”

Long-Term Care Insurance

Unum Group, a big disability insurers and parent company of Colonial Life Insurance, is “in a very different place,” compared with General Electric and the problems facing its long-term care block, said Richard McKenney, president and CEO of the company.

On Jan. 16, GE announced it would take a $6.2 billion charge for the fourth quarter to cover shortfalls in GE Capital’s North American Life & Health long-term care portfolio.

“GE's block was a reinsured block, which removes them one step from the customer block,” McKenney said. “Our block was direct written, so we directly control the underwriting and benefit guidelines in that block.”

In addition, 85 percent of Unum’s insured lives are group long-term care with a much younger client profile, funded mostly by employers and with smaller benefit levels with more conservative plan designs, he said.

Unum “aggressively and actively managed block over time,” setting aside as much as $4 billion over the years.

“I know we've had ten full-time actuaries dedicated to the block since 2012,” said McKenney. “And for a period, I was one of them.”

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].