Private long-term care insurance (LTCI) is still in Wall Street’s doghouse.
When issuers have mentioned the product in communications about first-quarter earnings, the focus has been mainly on efforts to control financial pain.
Issuers of private LTCI are even more vulnerable to the effects of ultra-low interest rates on product performance than issuers of other insurance products, because the issuers are promising to pay benefits on claims that are likely to occur years in the future, and some of the claims could last for many years.
Issuers are hoping to earn investment income on the premiums consumers pay before the insured need benefits. The issuers also are hoping to earn investment income on the reserves they set aside to cover LTCI obligations.
What’s more, LTCI issuers face concerns about problems with forecasting:
- How likely consumers are to drop policies.
- How likely they are to need covered long-term care (LTC) services.
- And, how long they will need covered LTC services.
See also: LTCI earnings: The rest of the story
Thomas McInerney, president of Genworth Financial, tried last week to convince securities analysts to think about the social and government budget reasons for investors, regulators and others to support LTCI issuers’ efforts to get LTCI right.
“Many of you listening to this call are currently in New York City,” McInerney told the analysts, during a first-quarter earnings conference call streamed live over the Internet. “I encourage you to take a look out at Manhattan: 3 million people live and work on that island, and 70 percent of all of those who reach 65 years old will need long-term care of some kind at some point. So, that’s about 2 million people just outside your window. In New York state, a private room at a nursing home costs $136,000 a year.”
Medicare will not cover most of those costs, and the Medicaid system, which has been paying many nursing home residents’ bills, will probably not be able to keep up as the need for care grows, McInerney said.
“Say what you will about our current political environment. There is a growing bipartisan understanding that the long-term care issue will dramatically impact state budgets, and that private long-term care insurance plays an important role in helping manage these impacts,” McInerney said. “We believe our long-term care insurance business is well-positioned to be an important part of the solution, but we must continue our efforts to urge regulators to make changes to the current model for premium rate actions.”
To see what else publicly traded LTCI issuers and their executives have been telling Wall Street about LTCI, read on.
1. CNO Financial Group (NYSE:CNO)
At CNO, the Bankers Life unit generated $6.1 million in new LTCI sales for the first quarter on $120 million in premium revenue, up from $5.3 million in sales on $118 million in premium revenue for the first quarter of 2015.
The interest-adjusted ratio of benefits costs to premium revenue fell to 75.3 percent, from 83 percent.
Edward Bonach, CNO’s chief executive officer, emphasized during CNO’s first-quarter earnings call that CNO’s LTCI business tends to be similar to short-term care insurance (LTCI), a product that is believed to be simpler to model than LTCI and less sensitive to low interest rates because the issuer pays relatively modest benefits for a relatively short period of time.
“Eighty percent of our sales of so-called long-term care are with benefits periods of one year or less, and 90 percent are with benefit periods of two years or less,” Bonach said.
See also: New short-term care group meets
2. Unum Group (NYSE:UNM) and CNA Financial Corp. (NYSE:CNA)
Unum and CNA both have large closed blocks of LTCI, meaning that they have policies on their books but are not writing new coverage.
Unum increased LTCI revenue to $162 million in the first quarter, from $158 million in the year-earlier quarter. Its interest-adjusted loss ratio increased to 88.9 percent, from 87.3 percent. The likelihood that policyholders would keep their policies increased to 95.5 percent, from 95.3 percent.
Both Unum and CNA have set aside reserves for their closed LTCI blocks. CNA now reports on the performance of its block in its earnings by including a figure for the difference between the expected performance built into the reserves and the actual performance.
For the first quarter, CNA is reporting a $5 million net loss on $505 million in premium and investment revenue, compared with a $31 million net loss on $505 million in premium and investment revenue for the first quarter of 2015.
During first-quarter conference calls, Unum and CNA talked mainly about how well the actual performance of the closed LTCI blocks matched reserve expectations.
“While there will undoubtedly be variability in future periods, over time, our re-set assumptions should, theoretically, produce a breakeven underwriting result,” Craig Mense, CNA’s chief financial officer, said during that company’s call.
See also: CNA outsources LTCI customer service
3. Genworth Financial (NYSE:GNW)
Genworth executives are talking bluntly about how financial weakness at the LTCI operations has affected that company’s ability to operate.
The company is reporting $35 million in net operating income for the first quarter on $952 million in revenue, up from $12 million in net operating income on $905 million in revenue for the first quarter of 2015.
Sales of group LTCI rose to $2 million, from $1 million, but individual LTCI fell to $5 million, from $10 million.
“Sales decreased primarily due to our lower ratings, higher pricing on newer products and certain distributor suspensions driven by recent rating agency actions,” the company says in a first-quarter financial supplement. “Following the adverse rating actions after the announcement of our results for the fourth quarter of 2015, distributors, representing in excess of 20 percent of our 2015 individual long-term care insurance sales, suspended distribution of our long-term care insurance products. We expect that our sales will continue to be adversely impacted by our current ratings.”
McInerney said during Genworth’s conference call that the company is trying to separate LTCI operations from other operations partly so that state insurance regulators can clearly see why the company needs premium increases.
Right now, given the state of the credit markets, Genworth will have a hard time refinancing its debt if it can’t get the premium increases needed to put the LTCI block on a firmer footing, McInerney said.
McInerney noted that the Penn Treaty insolvency, which involves a block of 100,000 LTCI policyholders, could cost state guaranty funds billions of dollars.
Genworth has 1.2 million LTCI policyholders, McInerney said.
The Penn Treaty insolvency “was created because they didn’t get premium increases,” McInerney said.
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