I just tried and found that UMG does support this feature.
I created a new UMG instance, then point its "root folder" to a existing folder. Once UMG start to synchronize it, it create an album for each directoty it finds. If a directory has child directories, these child directories are created as child albums.
Back to your case, I think there are two possible reasons:
1, UMG did create child albums, but some viewers does not support child albums so child albums are combined.
2, UMG did not create child albums, because your directory which you wish to be created as a parent album HAS IMAGES.
If a directory has images, UMG will create an album first, then these images will be added to this album. However, once an album has images, it cannot host child albums.