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Rate Hike Helps Genworth LTCI Sales

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The long-term care insurance (LTCI) business performed well at Genworth Financial Inc. (NYSE:GNW) during the fourth quarter of 2011.

Genworth, Richmond, Va., is reporting $140 million in total net income for the quarter on $2.6 billion in revenue, compared with a net loss of $126 million on $2.6 billion in revenue for the fourth quarter of 2010.

At the LTCI business, net operating income increased to $38 million, from $37 million.

Sales increased to $56 million, from $39 million, for individual LTCI products, and they jumped to $9 million, from $3 million, for group products.

Genworth, like many other LTCI carriers, has working to increase LTCI premiums both on in-force policies and on new business in recent years.

The company has said it needs to increase premiums partly because persistency — the likelihood the policyholders will hold on to their policies — turned out to be higher than expected.

Genworth “is currently implementing a previously announced premium rate increase of approximately 18% on the majority of older issued policies,” the company says in a discussion of its earnings.

At the end of the fourth quarter, Genworth had received increase approvals in 39 states that account for about 65% of the premiums targeted for increases, the company says.

Genworth notes that a shift to a new, higher-priced LTCI product generation helped LTCI prices in the fourth quarter, by encouraging consumers to hurry to buy older, lower-priced products.

Genworth also saw an increase in the percentage of policyholders who dropped their policies.

Because of the increase in policy terminations and the increase in premium rates, the ratio of benefits paid to premiums held steady at about 67%, Genworth says.

Genworth Chairman Michael Fraizer said during the company’s earnings call that, in addition to increasing the price of new LTCI products, Genworth will continue to focus on selling to consumers healthy enough to fit in the preferred risk category.

The company is continuing to emphasize sales of less capital-intensive fixed annuities, and it is holding LTCI capital demands down by reinsuring 40% of the new LTCI coverage that it writes, executives said.

Genworth is using forward-starting interest rate swaps to protect itself against the possibility that interest rates could fall still further, Fraizer said.

Martin Klein, the Genworth chief financial officer, said the loss ratio on newer LTCI policies is only about 50%, but he indicated that holders of older policies could see more rate increases coming their way.

“We are closely watching the performance of the older business and will assess potential additional rate actions accordingly,” Klein said.

Klein also talked about an accounting change that will keep Genworth from deferring the impact of the cost of generating sales leads. The change could have an effect of about $25 million to $30 million on earnings at the LTCI business, he said.

Klein noted that the accounting change will affect only financial statements prepared using the Generally Accepted Accounting Principles.

The change will have no effect on statutory results, Klein said.