American Financial to Keep Great American LTCI Unit

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.