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Genworth Posts Higher LTCI Sales

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Genworth Financial Inc. increased long-term care insurance sales in the third quarter in spite of the effects of price increases and tougher underwriting sales.

Genworth, Richmond, Va. (NYSE:GNW), sales individual LTCI sales rose to $54 million in the latest quarter, from $38 million in the third quarter of 2010.

Michael Fraizer, the president of Genworth, said during the company’s earnings call that the performance of the LTCI line has been mixed.

But “the new block is performing well,” Fraizer said.


The Genworth LTCI business is reporting $49 million in net income for the latest quarter on $891 million in revenue, up from $40 million in net income on $819 million in revenue for the third quarter of 2010.

Net operating income, which includes net investment gains and losses, fell to $31 million, from $44 million.

LTCI revenue for the latest quarter includes $602 million in premium revenue and $246 million in net investment income. The company spent $663 million on benefits and changes in policy reserves.

In the third quarter of 2010, LTCI revenue included $577 million in premiums and $232 million in net investment income. The company spent $602 million on benefits and policy reserve changes.

Sales by dedicated sales specialists increased to $14 million, from $12 million.

Sales by independent producers jumped to $34 million, from $21 million.

Genworth’s LTCI loss ratio increased to 71.4%, from 66.6%, in part because customers who have policies tend to keep the policies.


Fraizer said during the call that a “second round of price actions” for Genworth’s old block of LTCI business is well under way and should add about $50 million to the company’s LTCI premium revenue total in 2012.

The current low interest rates are harder on products that typically have a long duration than on short-duration products, and LTCI coverage is a long-duration product, Fraizer said.

Genworth has tried to manage LTCI interest rate risk by managing the durations of the bonds in its investment portfolio, and it also uses hedging programs, Fraizer said.

“In particular, for our long-term care (LTC) business, we actively hedged cash flow reinvestment risks, with about 75% of future cash flows on in-force business over the next 10 years receiving yield enhancements, if rates stay low,” Fraizer said.

Genworth also is using product pricing and design to cope with the current low rates.

The new LTCI products Genworth is introducing come with higher prices, to reflect the low interest rates, and Genworth is focusing on selling LTCI to preferred risks, Fraizer said.

To transfer claims risk and get capital that can be used to acquire new LTCI business, Genworth is coinsuring 40% of its new LTCI product, executives said.


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