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What does that Harbinger LTCI deal mean?

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HC2 Holdings Inc. has revived strategic hopes in the stand-alone long-term care insurance (LTCI) market by announcing plans to buy a big run-off LTCI business from American Financial Group Inc. (NYSE:AFG).

HC2, a unit of Harbinger Group (NYSE:HRG), agreed to buy United Teacher Associates Insurance Company and Continental General Insurance Company from American Financial for $7 million up front and up to $13 million in future payments. American Financial said the deal could also bring it about $105 million in future tax benefits.

HC2 would get $800 million in LTCI reserves, $300 million in annuity and life reserves, and responsibility for 58,000 LTCI insureds.

HC2 said it would make Jim Corcoran, who was the New York state insurance superintendent from 1983 through 1990, under Mario Cuomo, the executive chairman of its insurance unit.

For two years during the period after Corcoran left the New York Department of Insurance, he was an executive vice president at American General Corp., a unit of American International Group Inc. (NYSE:AIG). For most of the rest of that time, he has been a self-employed consultant. He has a bachelor’s degree from Iona College and a law degree from Fordham University.

Analysts at Fitch Ratings noted that the last big announcement of an LTCI unit deal came in February 2014, when Beechwood Re Ltd. agreed to reinsure a big block of LTCI business written by a unit of CNO Financial Group Inc. (NYSE:CNO).

For a look at the possible implications of the HC2-American Financial deal, read on.


1. HC2 might simply want to sell some type of life or health insurance product, not necessarily LTCI.

HC2 mentioned the fact that the businesses it is acquiring from American Financial have sold LTCI products in the headline on the press release it put out announcing the agreement, and in the lead, but those were the only two times HC2 referred to LTCI in the release.

Philip Falcone, chairman of HC2, said in a statement in the release that HC2 sees “an opportunity to build an attractive portfolio of insurance businesses.” 

HC2 also said it wants to “acquire operating businesses across a diversified range of industries.”

See also: Lawsky bars hedge fund giant from insurance business

Boarded up house

2. HC2 might really want to build an LTCI business.

Early on, regulators, and many LTCI issuers, viewed LTCI policies as products that ought to be priced to keep the same premium over the life of the policy, to protect the needs of policyholders who might be retired and living on pension proceeds when they finally need their benefits.

In recent years, many insurers, and some regulators, have argued that the old fixed pricing approach was unrealistic, and that issuers need more pricing flexibility to make the products sustainable.

Insurers have struggled to win regulatory approval for big, occasional premium increases, and some are pushing for the ability to ask for smaller increases every year, or every two years.

See also: Regulator: Market may need to reinvent LTCI

One sign that HC2 may have a serious interest in expanding in the LTCI market, not just using the old American Financial LTCI business as a platform for selling some other types of insurance products, is the emphasis HC2 has put on hiring a former New York state insurance regulator as the insurance unit’s chairman.

Ben Franklin

3. Some investors may be assuming that, at some point, interest rates will shoot back up.

LTCI issuer executives have been waiting, in vain, for rising interest rates to help restore LTCI businesses to profitability.

For a buyer with deep pockets, acquiring an LTCI business is a way to bet on the prospects of rates rising.

Fitch said the LTCI deal market would look much stronger if interest rates were about 2 percentage points higher than they are today.

See also: Ben Bernanke and You