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Long-term care insurers need great assets, consultants say

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Three consulting actuaries say insurers should establish separate, especially high-quality pools of assets to back their long-term care insurance policies.

David Hippen, Andy Rarus and Tricia Matson make that argument in a comment sent to the Long Term Care Valuation Subgroup.

Related: Regulators could shake up LTCI reserve rules

An insurer needs solid, long-duration investments to support LTCI coverage, because an LTCI claim is likely to start far in the future, the actuaries say.

They add that the fact that some insurers decide to get out of the LTCI market should also affect LTCI reserve rules.

If an insurer transfers a block of LTCI policies to another company, it needs to be able to send a suitable block of invested assets along with the LTCI policies, the actuaries say.

Another reason for insurers to establish separate reserves for LTCI business, and analyze the reserves carefully, is that bonds rarely have durations longer than 30 years, while LTCI issuers might have liabilities that last longer than 30 years, the actuaries say.

“This exposes the insurer to interest rate risk that can be evaluated through cash flow testing,” the actuaries say.

The actuaries who wrote the comment are all affiliated with Risk & Regulatory Consulting L.L.C. of Farmington, Connecticut.

The Long Term Care Valuation Subgroup is part of the Kansas City, Missouri-based National Association of Insurance Commissioners.

The subgroup is trying to write a guideline that will tell insurers how to apply the NAIC’s Health Insurance Reserves Model Regulation to deciding whether an insurers has enough reserves backing the LTCI policies it has sold.


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