Bond Analyst Thinks LTCI Reserves Could Triple Over Next 10 Years

Rating, bond and securities analysts at the S&P Global insurance conference said they are happy with the overall state of the U.S. life insurance industry.

The companies have coped well with the effects of the Great Recession and low interest rates, and they look as if they may be starting to come up a strategy for transferring annuity guarantee risk to other entities, the analysts said here today in New York, during several conference sessions.

The S&P conference is important because S&P views of insurers affect how much the insurers pay for financing and how much they can charge for insurance.

But Thomas Gallagher, a life insurance industry analyst at Evercore Partners Inc., and Robert Hauff, an insurance bond analyst at Wells Fargo Securities, said during a session on life sector trends that they still have concerns about insurers with large amounts of stand-alone long-term care insurance on their books.

(Related:  Investors Helping Life Insurers Shift to Pension Transfer Market: Analyst)

In the life sector as a whole, “I’m not seeing anything that’s keeping me up at night,” Hauff said.

Hauff emphasized that he believes that even most of the companies with large blocks of long-term care insurance business on their books will simply go through a few quarters of big reserve increases and then move on.

Many companies have argued that they have managed their blocks of long-term care insurance carefully and believe they have adequate reserves.

But Hauff and Gallagher said they are skeptical about assertions that reserve adequacy at General Electric’s long-term care insurance reinsurance business is much different from the level of reserve adequacy at other U.S. long-term care insurance and reinsurance businesses.

GE has said that it will add $15 billion to the reserves at its long-term care insurance reinsurance business.

Gallagher said he compared the GE long-term care insurance reinsurance business with other U.S. long-term care insurance operations and can see no major differences between the GE blocks of business and the U.S. long-term care insurance market as a whole.

Based on the apparent similarities between GE’s blocks of long-term care insurance reinsurance business and other U.S. long-term care insurance business, iand the reserve additions at GE, t’s possible that the rest of the long-term care insurance industry needs to make additions to reserves that are similar to what GE is making, the analysts said.

Hauff said he thinks it’s possible that, over the next 10 years, insurers may have to triple the size of the reserves backing long-term care insurance obligations.

— Read also, on ThinkAdvisor:

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• Long-Term Care Insurance Still in Investors’ Doghouse: Morgan Stanley
• Long-Distance Caregiving, Up Close: LTCI Insider

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