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7 Peeks Into Long-Term Care Insurance Issuers' Thinking

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Wall Street investors are still treating stand-alone long-term care insurance as if it were a terrible disease that an insurance company has to overcome.

Executives at publicly traded insurers that sell, or have sold, the product in the United States told investors a little about their blocks of in-force LTCI business, and any remaining LTCI sales operations they still have, recently, when they released second-quarter results.

(Related: Firm Proposes Long-Term Care Insurance Run-Off Program)

Executives from Manulife Financial Corp. were the coldest told their closed block of LTCI business.

Executives from Genworth Financial Inc. showed the most warmth.

Executives from CNO Financial Group Inc. gave a few performance numbers for the LTCI operations at the company’s Bankers Life unit.

Executives at AEGON N.V. said almost nothing about LTCI sales at its U.S.-based Transamerica business.

The publicly traded companies account for just part of the market. Mutual insurers that do not sell stock to the public are still active in the market, but they file different kinds of financial reports, on a different schedule.

Here are seven glimpses of the state of the U.S. LTCI market drawn from earnings reports, and insurers’ quarterly earnings conference calls with securities analysts.

1. Manulife appears to be open to offers for John Hancock.

Manulife, a Toronto-based company, acquired John Hancock, which is based in Boston, in 2004, around the time the U.S. LTCI and annuity markets were starting to peak.

The U.S. division is reporting $575 million in net income for the second quarter on $16 billion in premiums and deposits, up from $316 million in net income on $14 billion in premiums and deposits for the second quarter of 2016.

But Manulife has now stopped selling annuities and LTCI in the United States. The LTCI business is reporting $561 million in LTCI premiums and deposits, up from $543 million in the year-earlier quarter, and no LTCI sales, down from $9 million.

The Wall Street Journal reported in July that Manulife executives were eager to sell or spin off John Hancock, in partly because of the challenges facing its LTCI operations. Roy Gori, Manulife’s new president, has told investors that he is “impatient” to dispose of the U.S. operations, according to the article.

During Manulife’s conference call, Don Guloien, the outgoing president, said the company’s long-standing policy is not to comment on rumors.

“Having said that, we’ve been very clear on many occasions that we have some challenging blocks of legacy business,” Guloien said. “As we’ve repeatedly said, we regularly investigate all opportunities for improving shareholder value. We believe this is good governance, plain and simple, and there is no news here.”

Gori said one lever for improving Manulife’s returns is “exploring strategic options for legacy blocks of business that do not generate sufficient risk-adjusted returns.”

Michael Doughty, interim president of the John Hancock unit, included the LTCI unit in a discussion of John Hancock’s legacy businesses.

2. Manulife wants to cut costs at John Hancock’s LTCI operations while it still has them.

Doughty told investors during Manulife’s analyst call that, “A focus on expense management runs across all our U.S. businesses, but particularly our legacy businesses.” 

3. Genworth is eager to complete the China Oceanwide deal.

Genworth, a company based in Richmond, Virginia, sells mortgage insurance as well as LTCI. The company as a whole is reporting $271 million in net income for the second quarter on $2.2 billion in revenue, up from $220 million in net income on $2.2 billion in revenue for the second quarter of 2016.

The LTCI unit is reporting $33 million in adjusted operating income for the latest quarter on $1 billion in revenue, compared with $37 million in adjusted operating income on $1.1 billion in revenue for the year-earlier quarter.

LTCI sales fell to $3 million, from $6 million.

Ben Franklin (Image: Thinkstock)

(Image: Thinkstock)

Sales are down primarily because rating agencies have cut Genworth’s credit ratings, the company says.

A unit of China Oceanwide Holdings Group Co. Ltd. has agreed to acquire Genworth for about $2.7 billion. Genworth shareholders have approved the deal, but the companies still need approvals from regulators in the United States, China and other jurisdictions.

Genworth says in the 10-Q report, a document filed with the U.S. Securities and Exchange Commission, that it’s making major upgrades to its systems and continuing to move its LTCI business to a new modeling system, to improve cash flow and policyholder behavior analysis and forecasting.

If the China Oceanwide deal falls through, the company could face “increased pressure on and potential downgrades of our financial strength ratings, particularly for our mortgage insurance businesses,” Genworth says.

The downgrades could hurt Genworth’s market share in in the U.S. mortgage insurance industry and limit the company’s ability to continue to write new long-term care insurance policies, the company says.

4. Hard times for LTCI issuers may create some business opportunities for information technology and actuarial services providers.

Manulife is launching an LTC Portal, a consumer website that’s supposed to improve support for customers and standardize infrastructure and reporting.

Genworth says it’s upgrading its systems and continuing to move its LTCI business to a new modeling system, to improve its ability to monitor cash flow and policyholder behavior.

5. Reinsurance has been helping Genworth hold down LTCI claim costs.

Genworth says it still has external reinsurance on LTCI business that was written from 1998 and 2003.

“This yearly renewable term reinsurance provides coverage for claims on those policies for 15 years after the policy was written,” the company says. “After 15 years, reinsurance coverage ends for policies not on claim, while reinsurance coverage continues for policies on claim until the claim ends. Since 2013, we have seen, and may continue to see, an increase in our benefit costs as policies with reinsurance coverage exhaust their benefits or terminate and policies which are not covered by reinsurance go on claim.”

Tom McInerney (Photo: Allison Bell/TA)

Genworth President Tom McInerney (Photo: Allison Bell/TA)

For now, Genworth says, it still has agreements that help it reinsure 20% of all sales of individual LTCI products that have been introduced since early 2013.

6. CNO and Aegon are not saying much about ongoing LTCI operations.

CNO, a company based in Carmel, Indiana, says the Bankers Life LTCI unit, which still sells new LTCI policies, says first-year LTCI sales fell to $4.1 million during the second quarter, from $4.4 million in the year-earlier quarter.

Sales are falling partly because the company is emphasizing the sale of less expensive LTCI policies with short benefits periods, rather than convention LTCI, the company says.

The LTCI renewal premium total fell to $108 million, from $114 million.

AEGON, a company based in the Hague, in the Netherlands, says of its Transamerica LTCI unit only that reserves have increased to $5.7 billion, from $5.3 billion.

An executive said at a conference in March that the company’s 2016 U.S. LTCI sales accounted for only about 1% of the company’s $1.4 billion in 2016 life, accident and health insurance sales. That suggests that the company may have generated somewhere between $12 million and $16 million in LTCI sales in the United States last year.

CNO executives said during their company’s earnings call that they are trying to dispose of responsibility for a closed block of LTCI business.

7. Genworth would like to find a way to stay in the LTCI business.

Genworth is not holding earnings calls with analysts while the China Oceanwide deal is still in progress.

The company says in its 10-Q that it has suspended sales of LTCI in Hawaii, Massachusetts, New Hampshire and Vermont because of those states’ refusals to grant rate increase requests.

But the company says it’s still trying to sell LTCI products, including a new product that offers narrower benefits and lower premiums. “In support of this product, we are investing in targeted distribution and marketing initiatives to increase long-term care insurance sales,” the company says.

Tom McInerney, president of Genworth, said in a statement included in the company’s second-quarter earnings release that letting the China Oceanwide deal proceed would be good for the LTCI market.

“As a result of the merger, Genworth will be in a better position to support the market and help the government and taxpayers shoulder the burden of long-term care financing,” he said.

China Oceanwide also seems to be open to the idea that Genworth could continue to sell stand-alone LTCI.

Lu Zhiqiang, the chairman of China Oceanwide, said in a statement of his own that he wants to complete the Genworth acquisition as soon as possible.

“I believe the merger will strengthen Genworth and its leadership role in mortgage insurance and the U.S. long term care insurance market, and allow us to bring best practices from the recognized leader in long term care insurance to China as we expand our long term care insurance capabilities and work together to address a common challenge for our aging populations,” Lu said.

—-Read Supreme Court backs self-insured plans in ERISA case on ThinkAdvisor.