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Insurer reports long-term care accounting problem

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(Bloomberg) — Genworth Financial Inc. (NYSE:GNW) said Monday that it found a material weakness in its accounting for long-term care insurance (LTCI).

“We are currently working to remediate the material weakness,” Genworth said in a document filed with the U.S. Securities & Exchange Commission. “We did not have adequate controls designed and in place to ensure that we correctly implemented changes made to one of the methodologies as part of our comprehensive long-term care insurance claim reserves review.”

The insurer said in the filing that it initially failed to identify a $44 million calculation error tied to a review of LTCI reserves. The company said it’s working to fix the problem by separating actuarial teams and by expanding the scope of reviews when it changes assumptions or methods. Genworth said it plans to fix the problems this year.

Long-term care coverage helps pay for home-health aides and nursing home stays. Some customers pay premiums for decades before the insurer knows if it will incur claims costs.

Accounting for the contracts involves periodically reevaluating the percentage of policyholders who submit claims and the cost per person. Lower interest rates also force the company to change profitability assumptions, because they mean that insurers earn less on bonds held to back obligations.

See also: Ben Bernanke and You.

MetLife Inc. and Prudential Financial Inc., the largest U.S. life insurers, also were burned by higher-than-expected costs on long-term care. They stopped issuing new policies, which helped Genworth gain market share.

The company has been charging more for new policies while seeking regulators’ permission to increase rates on coverage sold in prior years.

The company has also been cutting jobs and said it may sell assets to shore up the company’s finances. The insurer reiterated in Monday’s filing that it’s pursuing a sale of a lifestyle-protection unit that helps consumers pay debt if they become unable to meet their obligations after an accident or job loss.

—With assistance from Jing Cao and Doni Bloomfield in New York