Prudential Financial Inc. is adding $1.4 billion to its long-term care insurance (LTCI) reserves, to reflect the possibility that improvement in the ability of the insureds to function may not show up.
Back in 2012, when Prudential stopped selling new LTCI policies, it had few LTCI policyholders collecting benefits. It used data from outside sources to set the assumptions used to decide how much to set aside to pay claims, according to Robert Falzon, the company’s chief financial officer.
Prudential had assumed that morbidity levels would improve about 1% per year, just as mortality tends to improve each year.
Now, Falzon told securities analysts Thursday, during a conference call, Prudential has more information about its policyholders’ claims. After in-house analysts reviewed claim data, “we felt there was no discernible trend toward morbidity change,” Falzon said.
Prudential’s $1.4 billion charge will increase the LTCI reserves Prudential records under U.S. Generally Accepted Accounting Principles (GAAP) by about 27%, to $6.6 billion.
GAAP accounting rules are the rules that apply to all companies that sell stock to the public.
State insurance regulators use their own Statutory Accounting Principles to review insurers’ performance. Because the statutory LTCI reserves have more room for error built in, the statutory reserves will increase by only about 9%, to $7 billion., Prudential says.
Falzon said he believes Prudential’s new skepticism about moribidity improvement among LTCI policyholders is different from what competitors are including in their LTCI reserving assumptions.