If state insurance regulators started rejecting too many long-term care insurance (LTCI) rate increase requests, that could cause serious reserving problems for some U.S. LTCI issuers, according to a new report from S&P Global Ratings.
Deep Banerjee and other analysts at S&P Global Ratings have included data on LTCI issuers’ rate increase revenue forecasts in a new look at the assumptions the issuers have used to set their reserves.
Eight insurers with large blocks of LTCI policies on their books have assumed, when they set their LTCI reserves, that they will get permission from state insurance regulators to implement future LTCI premium increases with a total value of about $12 billion, according to S&P analyst figures.
The projected premium revenue from the “unapproved rate increases” amounts to about 11% of those eight carriers’ $108 billion in LTCI reserves.
The value of the unapproved rate increase revenue used to set reserves ranges from $200 million, at CNA Financial, up to $8 billion at Genworth Financial Inc., according to S&P data.
The ratio of unapproved rate increase revenue included in reserves to current reserves ranges from 1.7%, at CNA, up to about 30%, at Genworth, according to a ThinkAdvisor analysis of the S&P data.
At five carriers, the amount of unapproved rate increase revenue used to set reserves amounts to less than 7% of the total LTCI reserves. At three carriers, the amount of unapproved rate increase revenue used to set reserves amounts to more than 10% of LTCI reserves.
“Currently, regulators are approving most requests for rate increases, if not always the entire amount,” the S&P analysts say in their report. “In our base case, we expect insurers to continue to need more premium increases as they offset historical mispricing of these policies. Currently, we also assume regulators will continue to approve most of these rate requests. The lack of regulatory approvals can significantly affect LTC reserve adequacy for most insurers.”
The S&P analysts included the LTCI rate increase forecast data in a new look at several different types of assumptions issuers have used to set their reserves.
The analysts note that nine issuers sold a total of just 125,000 new LTCI policies in 2017, but that companies have stand-alone LTCI policies covering more than 6.5 million people still in force. Insurers are covering about 4.5 million people through individual policies, and about 2 million through group policies.