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HC2, Aegon let investors peek into long-term care insurance units

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Executives from two publicly traded companies recently talked a little about how they see the U.S. long-term care insurance market today.

HC2 Holdings, the New York City-based parent of Continental Insurance Group, and Aegon N.V., which is based on the Hague, in the Netherlands, let investors peek into their long-term care insurance operations when they went over their second-quarter earnings with securities analysts.

HC2 got into the U.S. long-term care insurance market when it acquired closed blocks of long-term care insurance business and other insurance business from Cincinnati-based American Financial Group in December 2015.

Related: What does that Harbinger LTCI deal mean?

HC2 is a holding company that invests in many different kinds of businesses, in an effort to generate free cash flow and attractive returns for its investors.

The insurance unit generated a net loss of $2.3 million in about $20 million in premiums and about $2.1 billion in assets during the second quarter, compared with a net loss of $7.5 million for the first quarter of the year, the company says in an earnings presentation slidedeck

When HC2 bought the closed blocks from American Financial, it agreed to pay the seller up to $13 million in extra cash if the policies in the closed blocks did better than expected.

Whether HC2 has to make the extra payments depends on how statutory financial reports affect a premium deficiency reserve, or pot of cash, set aside to take care of the estimated gap between what the closed-block policy premiums are and what the premiums should be to cover the policy obligations.

“Based on the 2015 statutory statements, the company does not have a payment due,” HC2 says in a report filed with federal securities regulators. “Further, the company’s current estimate is that the obligation will not be incurred through the year ending December 31, 2019.”

The blocks are likely to continue to do poorly because of low interest rates on bonds, uncertainty around the cost of servicing the blocks of business, and the need to add $8 million to the premium deficiency reserve amount reported Dec. 31, 2015, HC2 says.

But HC2 describes Continental Insurance as a vehicle “for acquiring additional run-off [long-term care insurance] businesses” in the earnings presentation slidedeck.

The unit is “a platform to provide a vehicle for multi-line insurers who do not consider [long-term care insurance] a core business to exit the market,” HC2 says. 

Separately, Aegon, the parent of Transamerica, says Transamerica had 5.3 billion euros in long-term care insurance reserves at the end of the second quarter, up from 4.6 billion euros a year earlier.

Alex Wynaendts (Photo: Aegon)

Alex Wynaendts, Aegon chief executive officer. (Photo: Aegon)

Why Aegon CEO feels better about the old LTCI business

The company did not break out separate long-term care insurance sales, revenue or income results for the quarter, but it said its Aegon Americas unit generated 17 million euros in operating earnings in the latest quarter on 553 million euros in revenue, compared with 52 million euros in operating earnings on 583 million euros in revenue for the second quarter of 2015.

The company’s new accident and health premiums fell to 186 million euros, from 216 million euros.

In a conference call with securities analysts, Aegon said that it thinks of most of its long-term care insurance as part of a closed block of business. But Alex Wynaendts, Aegon’s chief executive officer, noted that Aegon now sells a new type of long-term care insurance product with limited benefits.

Aegon’s Transamerica is seeking premium increases on the old long-term care insurance products but not for the new, defined-benefit long-term care insurance products, Wynaendts said.

Transamerica is seeking increases on the old long-term care insurance products in about 20 states that account for about 70 percent of its long-term care insurance business.

At this point, “we are feeling better about the progress we’re making,” Wynaendts said. “I don’t want to be explicit on which states we have had what approvals, but I can assure you that we have made good progress in having approvals.”

The climate has changed partly because of the failure of another long-term care insurance issuer, Penn Treaty, Wynaendts said.

“The judges have been very clear about that, that one of the reasons the company went bankrupt is that regulators did not afford and did not allow rate increases that should have taken place,” Wynaendts said. “So, you probably hear us speaking now clearly more positively about the outcome of the rate increases… than you’ve heard us speaking for some time.”


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