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Genworth to drop AARP LTC product line

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Genworth Financial Inc. (NYSE:GNW) said it will stop selling AARP-branded long-term care insurance (LTCI) June 1.

Genworth, a major writer of LTCI coverage, has been writing the AARP-branded products through its Genworth Life Insurance Company and Genworth Life Insurance Company of New York units since 2007.

Existing AARP LTCI coverage will not be affected by the change, the company said.

AARP is a nonprofit group for people ages 50 and older. It has 37 million members.

Jeff Davis, an AARP representative, said that Genworth is still offering caregiver support services through AARP, and that AARP has been working with Genworth to develop a new long-term care program.

Although the Genworth suspension of AARP-branded LTCI sales ends the exclusive branding arrangement Genworth has had with AARP, AARP is not actively seeking another LTCI provider, Davis said.

AARP would be open to talking to other insurers, Davis said.

“We’re committed to education on long-term care and what is best for 50-plus consumers and our members,” Davis said.

Genworth announced the AARP move around the same time the company was holding a conference call with securities analysts to discuss first-quarter earnings.

Genworth is reporting a total of $141 million in net income for the first quarter on $2.3 billion in revenue, compared with $46 million in net income on $2.3 billion in revenue for the first quarter of 2012.

The LTCI unit, a part of Genworth’s U.S. life insurance division, is reporting $20 million in net operating income for the latest quarter on $775 million in revenue, compared with $35 million in net operating income on $775 million in revenue for the first quarter of 2012, according to a financial supplement.

Premium revenue fell to $513 million, from $521 million, and net investment gains increased to $264 million, from $255 million.

Group LTCI sales increased to $5 million, from $3 million. Individual sales fell to $35 million, from $45 million, in part because, in the year-ago quarter, consumers flocked to buy coverage before pending price increases took effect, the company said.

Sales through independent producers fell to $21 million, from $28 million, and sales through dedicated sales specialists fell to $10 million, from $12 million.

The loss ratio for “older generation” policies fell to 103 percent, from 115 percent; the loss ratio for newer generation policies rose to 59 percent, from 57 percent.

During the conference call with analysts, Tom McInerney, Genworth’s president, said he believes that Genworth can play an important role in helping to protect consumers and state governments against the financial impact of the projected increases in long-term care costs.

But “we are prepared to take actions, such as suspending sales in states and ending new sales through distribution channels where we cannot offer products with an acceptable risk-adjusted return,” McInerney said.

The company is now about 20 percent to 30 percent of the way through previously announced price increases on old, pre-2004 blocks of LTCI policies that should add about $200 million to $300 million per year in premium revenue, executives said.

The company is talking to regulators about watching post-2004 LTCI policies more closely and seeking smaller, more frequent increases when necessary, rather than seeking infrequent increases of 50 percent or more, executives said.

Genworth believes that adjusting rates more frequently would be easier on consumers and also help the company manage the LTCI business more effectively, executives said.

The company also is trying to re-position new products by focusing on more tightly underwritten products based on more conservative assumptions, executives said.

The new products will come with shorter benefit periods, lower daily benefit options and fewer riders, executives said.

Last week, executives at a smaller player in the LTCI market, CNO Financial Group Inc. (NYSE:CNO), painted a similar picture of the LTCI market when that company released its earnings.

CNO’s Bankers Life unit reported $6.1 million in new LTCI sales on $135 million in LTCI premium revenue, down from $7.9 million in new LTCI sales on $137 million in LTCI premium revenue.

Bankers Life is “exercising strict pricing discipline” when it sells LTCI policies, and focusing on selling smaller policies with lower premiums, in part because of the effects of low interest rates on the investment returns that help the company support LTCI policy benefits obligations, CNO executives said during their company’s earnings call.

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