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Life Health > Life Insurance

LTCI earnings: Rays of hope

By Allison Bell

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Genworth Financial Inc. (NYSE:GNW), a major player in the private long-term care insurance (LTCI) market, will release its earnings late Wednesday, after press time.

So far, three other carriers with LTCI operations — one with a unit that still sells LTCI, and two with closed blocks of LTCI business — have been a little warmer toward the operations in third-quarter earnings announcements than they have been in other recent quarters.

CNO Financial Group Inc. (NYSE:CNO), a company that continues to sell LTCI, reported “favorable reserve developments” at its LTCI unit.

CNO is reporting $5.6 million in new annualized LTCI premiums at its Bankers Life unit for the latest quarter on $124 million in collected premiums, down from $6.2 million in new annualized premiums on $131 million in for the third quarter of 2013.

Unum Group Corp. (NYSE:UNM) noted an improvement in claims for its closed block of LTCI business. That company is reporting $158 million in LTCI operating revenue for the latest quarter, up from $157 million for the comparable quarter in 2013.

CNA Financial Corp. (NYSE:CNA), a company that stopped marketing LTCI early, says its “life and group non-core” unit results “relate primarily to the individual and group long-term care business.” The company’s life unit reported a net loss of $21 million for the latest quarter on $139 million in net earned premiums, compared with a net loss of $36 million on $140 million in net earned premiums for the third quarter of 2013.

Here are three snapshots of what the companies have been saying about their once and current LTCI operations.

janet yellen

1. They would like the Federal Reserve Board to raise interest rates, please.

Under Janet Yellen, the new Federal Reserve Board chairman, the Fed has talked about possibly getting rates off the floor at some point but failed to take action to get them off the floor.

Insurers with products that are designed to pay off many years in the future, or to pay benefits over many years, or both, suffer from low rates because low rates depress earnings on the bonds and other fixed-income holdings insurers typically use to support their obligations.

Unum notes in the description of challenges in the “safe harbor statement” it adds to its earnings announcements that one of the major risks it faces is “sustained periods of low interest rates.”

Low rates hurt the investments that back Unum’s long-term disability insurance policies as well as its LTCI block.

CNO reports that, without help from adjustments for the effects of low interest rates, its actual Bankers Life LTCI benefit ratio for the latest quarter was 123.6 percent.

Ed Bonach, CNO’s chief executive officer, noted that sustained low rates could bite into the LTCI block’s results. He said his company usually reviews its interest rate assumptions in the fourth quarter.

Fred Crawford, the chief financial officer, said it’s unlikely that the company will assume that rates will continue to fall, or stay at current low rates forever. “That’s not normally what a forward curve would suggest to us,” he said. “”

D. Craig Mense, chief financial officer at CNO, said interest rates will be the biggest driver this year in the performance of its LTCI block.

Image: Janet Yellen (AP Photo/Susan Walsh)

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2. The ratio of claims to premium revenue looks a little better.

At Unum, The LTCI unit’s interest-adjusted loss ratio fell to 88.5 percent, from 89.6 percent.

At CNO, the Bankers Life interest-adjusted LTCI benefit ratio fell to 70.5 percent, from 79.4 percent. CNO also was able to release $11 million in LTCI reserves because it added a system that helps it identify changes in the status of its insureds more quickly. ”At a minimum, we’re not seeing deterioration in claims activities,” Bonach said during his company’s analyst call.

CNA said an improvement in “morbidity” — claims — contributed to an improvement at its LTCI business. Executives said during their company’s analyst call that, when they did a claim review in the third quarter, they found morbidity was a little better than expected.

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3. They appreciate the help they have already gotten from state insurance regulators with raising LTCI rates but may need some more increases.

At CNA, executives listed “rate increase actions” as an explanation for improving life unit performance.

Bonach said regulator resistance to raising rates on CNO’s older LTCI business causes strain. “We still have pockets of policies that struggle,” he said. “They really need rate action to stabilize.”

Jack McGarry, president of Unum’s closed block business, included rate regulation in a list of factors driving LTCI block performance. “The ability to get rate increases in the future to respond to interest rate pressure is important,” he said.

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