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Canadian Pension Board Arm Agrees to Reinsure Big CNO LTCI Block

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CNO Financial Group Inc. today announced a deal that could be a sign that at least some long-term care insurance (LTCI) issuers will have an easier time disposing of unwanted blocks of LTCI business.

Wilton Re has agreed to assume responsibility for a large block of old LTCI policies written by CNO’s Bankers Life and Casualty Company unit. The policies are backed by about $2.7 billion in reserves.

Wilton Re is not paying CNO for the opportunity to reinsure the LTCI block. CNO is paying Wilton Re $825 million to reinsure the block, the companies say.

CNO is a Carmel, Indiana-based holding company.

Bankers Life is a Chicago-based companies that continues to write some new stand-alone LTCI coverage.

Wilton Re is a Norwalk, Connecticut-based arm of the Canada Pension Plan Investment Board.

(Related: Canadian Pension Board Reinsurance Arm Closes on Aegon Deal)

The deal is subject to regulatory approvals. The companies hope to close on  the deal by the end of the year.

Why the Deal Matters

Many insurers have gotten out of the LTCI business in recent years, or reduced the scope of their LTCI programs, because of concerns about factors such as low interest rates, slow LTCI sales, and problems with predicting how LTCI policyholders will behave.

Insurers have had a hard time selling unwanted blocks of LTCI business, or disposing of unwanted blocks through reinsurance arrangements.

CNO succeeded at making an LTCI reinsurance deal in 2014, for a block of business with about $500 million in reserves, but it ended up canceling the arrangement in because of concerns about the reinsurer’s relationship with another company.

CNO executives have been hinting ever since that they would like to make a new LTCI deal, and they hinted in April that they might be getting close to making some kind of deal.

Gary Bhojwani, CNO’s chief executive officer, said today, in a statement about the deal, that Wilton Re is a highly traded, well-capitalized counterparty.

“Completion of this reinsurance transaction achieves our stated objective to reduce our exposure to the long-term care business,” Bhojwani said. “We expect this transaction to improve return on equity and cash flows in future periods and to materially reduce the risk profile of the company. More importantly, this allows management to focus its time on accelerating profitable growth and serving the needs of the fast-growing middle-income market.”

Although CNO is using the Wilton Re deal to dispose of an unwanted block of LTCI business, the deal could increase some insurers’ comfort with selling stand-alone LTCI or related products, by giving them a mechanism they can use to leave the market if they want to get out.

CNO’s Future as an LTCI Issuer

CNO says Bankers Life itself will continue to sell stand-alone LTCI coverage.

Bankers Life will stop selling home care-only or LTCI with a benefit period over three years after Sept. 30, CNO says.

But Bankers Life will continue to sell comprehensive and nursing-home-only LTCI policies with benefits periods of up to three years.

“CNO remains committed to long-term care insurance and will continue to offer short-term care and long-term care policies with benefits that reflect prudent risk management and the insurance needs of the middle-income market,” the company says.

The Deal

CNO and Wilton Re say the deal will affect Bankers Life LTCI policies written before 2003.

The companies have not given more details about the block, but the block may be the same block subject to LTCI rate increase requests that Bankers Life filed in Connecticut in 2015 and in 2017.

Bankers Life sold  the policies in that block from 1992 through 2003. About 87,000 policies in the block were still in effect nationwide in 2017, according to the 2017 filing.

Wilton Re

Wilton Re says it expects to assume responsibility for the Bankers Life LTCI block through an administrative reinsurance agreement.

Wilton Re take over the administration of the business after a transition period, the company says.

Although the deal is the first Wilton Re has made in the LTCI market, the company has been handling run-off operations for other types of products in North America.

Wilton Re also has some familiarity with how CNO does business: This is the fourth significant deal Wilton Re has made with CNO, Wilton Re says.

Mike Fleitz, the chief executive officer of Wilton Re’s Wilton Reassurance Company unit, said in a statement that his company sees the LTCI transaction as being in line with the company’s core competencies.

“We are pleased to assist CNO with this important transaction, which will provide CNO with a permanent transfer of its legacy LTC business risk,” Fleitz said.

— Read CNO More Optimistic About Long-Term Care Insurance Dealon ThinkAdvisor.

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