American Family still has 60,000 active LTCI policies on its books. (AP Photo/Genevieve Ross)

American Financial Group Inc. says it will be keeping the part of the Great American Supplemental Benefits business that sells long-term care insurance (LTCI).

Cigna Corp., Bloomfield, Conn. (NYSE:CI), announced earlier this month that it plans to acquire most of the Austin, Texas-based supplemental benefits business from American Financial, Cincinnati (NYSE:AFG), for about $295 million in cash.

Cigna and American Financial hope to get the approvals they need to close on the deal by the end of the year.

Cigna said it will be getting a substantial Medicare supplement insurance business and a business that sells products such as critical illness insurance.

The companies’ decision to leave the LTCI business with American Financial attracted less attention.

American Financial says in documents filed with the U.S. Securities and Exchange Commission (SEC) that it stopped selling LTCI in January 2010.

The company still has 60,000 guaranteed renewable LTCI policies on the books, and it will accept renewal premiums on the policies until the policies lapse, the company says.

At the end of 2011, American Financial had $490 million in LTCI reserves, net of reinsurance recoverables, or an average of about $8,200 in policy reserves per policy.

American Financial can reprice the policies to reflect adverse experience, subject to regulatory approval, but inability to get “price increases and appropriate investment yields on its closed block of long-term care policies may adversely affect [the company's] profitability,” the company says in a 2011 financial statement filed with the SEC. “In addition, given the duration of the long-term care product, [the company] may be unable to purchase appropriate assets with cash flows and durations necessary to match those of future claims in that business.”

American Financial believes the value of its LTCI reserves and the present value of future premiums will exceed claims costs and unamortized acquisition expenses by about $25 million, the company says.

A 1% change in assumptions about claims costs or a 0.1% change in investment yield assumptions in all future periods, excluding their effect on the company’s ability to achieve future rate increases, could cut the estimated excess value by about $10 million, the company says.