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S&P analysts see morbidity as LTCI wild card

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Credit analysts at Standard & Poor’s Ratings Services have published a dreary review of the U.S. long-term care insurance (LTCI) industry.

Neal Freedman and other S&P analysts who worked on the report described the industry as being mired in a slump.

“Looking to the future, we expect the LTCI marketplace to continue to contract as companies abandon the product and the new, higher-priced stand-alone product becomes affordable to only a small percentage of the population,” the analysts write.

The analysts say they expect insurers to try to hold down the cost of stand-alone coverage by offering products with lower benefits levels, and to transfer more risk to policyholders by combining long-term care (LTC) benefits with life- and annuity-based hybrid products.

“We will continue to monitor these industry developments and evaluate their effect on credit quality,” the analysts say.

The analysts note the effects of problems with low interest rates and lower-than-expected rates of consumers dropping their policies as challenges for the industry.

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LTCI benefits users are living longer than expected, and that’s another problem, the analysts say.

“At the same time,” the analysts say, “overall morbidity may be higher or lower than pricing accounts for, depending on factors such as pricing, conservatism and underwriting practices.”

Morbidity is the least predictable factor, because medical advances could either shorten or lengthen the time LTCI policyholders end up living with a need for LTC services.

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But the analysts presented a table showing that eight of the 10 top LTCI issuers have S&P financial strength ratings of A or higher, and that nine of the issuers have a stable S&P rating outlook.