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LTCI Watch: Strong Persistency

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The only people more enthusiastic about private long-term care insurance (LTCI) than LTCI agents, brokers and wholesalers may be the LTCI policyholders themselves.

One of the lessons of the latest round of first-quarter earnings reports is that, in terms of sheer, dogged loyalty and determination, LTCI policyholders are the kinds of people you would want at your side if you were ever planning to take a walk through Hell.

Unum Group Corp., Chattanooga, Tenn. (NYSE:UNM), is reporting $214 million in net income for the latest quarter on $2.6 billion in revenue, compared with $224 million in net income on $2.6 billion in revenue for the first quarter of 2011.

The company’s closely watched U.S. group disability arm increased premium revenue 1% to $513 million, and sales of fully insured group long-term disability (LTD) coverage 21%, to $36 million.

“The company has seen some moderation of the intense price competition in certain market sectors…as well as a slight increase in premium resulting from higher employment and wage increases in our in-force cases,” the company says.

Unum has, of course, recently discontinued sales of group LTCI coverage.

Instead of running for the hills, LTCI customers have increased the company’s LTCI premium revenue 3.1%, to $155 million. Group LTCI sales were also higher.

“While the company announced in the first quarter of 2012 that it would discontinue sales of new long-term care business, there were several group cases which were already in the quoting and/or underwriting process for which policies have now been issued,” the company says.

Because of an increase claim incidence rates, Unum has increased the interest adjusted loss ratio for the LTC block to 91.2%, from 83% a year earlier.

LTCI premium persistency — the likelihood that business on the books would stay on the books — increased to 95.9%, from 95.6%.

Genworth Financial Inc., Richmond, Va. (NYSE:GNW) — a company that is still in the LTCI market — is reporting $80 million in net income for the latest quarter on $2.4 billion in revenue, compared with $93 million in net income on $2.6 billion in revenue for the first quarter of 2011.

The Genworth U.S. life unit generated $35 million in earnings on $48 million in individual and group LTCI sales, compared with $36 million in earnings on $48 million in LTCI sales for the comparable quarter in 2011.

“The company continues to utilize expanded levels of reinsurance across life and long term care insurance as part of its capital optimization strategies,” Genworth says in a discussion of its earnings.

Genworth also is “implementing a previously announced premium rate increase of approximately 18% on the majority of older issued policies,” the company says. “As of March 31, 2012, the company had received approvals for price increases in 43 states, representing approximately 70% of the targeted premiums….  The company intends to make targeted changes to manage sales volumes for improved profitability and statutory earnings in 2012.”

Genworth says in the “cautionary note” at the end of its earnings release that one possible risk that could face the company is “reputational risks as a result of rate increases on certain in force long-term care insurance products.”

But, at least when expressed in terms of the Generally Accepted Accounting Principles (GAAP) investors use, the U.S. LTCI unit is reporting $34 million in net income on $775 million in revenue, up from $30 million in net income on $713 million in revenue for the first quarter of 2011.

Premiums increased to $521 million, from $491 million.

Net investment income rose to $255 million, from $229 million.

The loss ratio increased to 66.4%, from 64.5% during the first quarter of 2011, but the ratio was lower than it was during the other three quarters of 2011.

Sales through independent producers fell to $28 million, from $29 million, but sales through the financial intermediary and dedicated sales specialist channels held steady, in spite of the news about the rate increases.

Genworth didn’t include an indicator of the toughness of its LTCI policyholders and new customers, but any accurate indicator likely would have produced a result of “as nails.”


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