Executives from Genworth Financial Inc. said Wednesday that the company’s Genworth Life Insurance Company (GLIC) unit could see its solvency level deteriorate if state insurance regulators fail to approve $6 billion in additional long-term care insurance (LTCI) rate increases.
(Related: Genworth Reports Higher Earnings)
Kelly Groh, the Richmond, Virginia-based insurer’s chief financial officer, talked about GLIC’s risk-based capital (RBC) ratio and overall capital levels during a conference call the company held to go over first-quarter earnings with securities analysts.
The company reported that its long-struggling LTCI unit generated $42 million in net income for the quarter on $1.1 billion in revenue, compared with a $27 million net loss on $1 billion in revenue for the year-earlier quarter.
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The LTCI unit did a little better than GLIC’s closed blocks of life and annuity business.
But GLIC’s RBC ratio fell to 195% in the first quarter, from 198% in the fourth quarter of 2018, and from 279% in the first quarter of 2018, according to Genworth.
RBC Ratio Terminology
An RBC ratio is a standardized indicator that shows roughly how well an insurer is equipped to meet its insurance and annuity obligations.
Groh told securities analysts that Genworth reports RBC ratios expressed in terms of the “company action level,” rather than in terms of the “authorized control level.”
State insurance regulators take an insurer over when its risk-based capital level falls under the authorized control level.
State regulators require an insurer to explain how it will improve its finances when its RBC level falls to the company action level, which is 200% of the authorized capital level.
GLIC’s 195% RBC ratio is 195% of the company action level RBC ratio level, but 390% of the authorized control level RBC ratio level, Groh said.
GLIC’s RBC Ratio
Groh emphasized to the securities analysts that Genworth is not taking responsibility for helping GLIC make up for what Genworth believes to be LTCI premiums that are too low.
Genworth is in the process of getting regulator permission to be acquired by China Oceanwide Holdings Group Co. Ltd. of Beijing.
Genworth has agreed, in connection with the deal, to provide $175 million for GLIC.
“The contribution to GLIC is a special one-time commitment made in conjunction with the proposed transaction with Oceanwide,” Groh said. “As we have indicated previously, it is our intention to manage the U.S. life entities on a stand-alone basis, with no future plans to infuse capital into these businesses.”
To meet policyholder obligations, GLIC must count on the one-time $175 million contribution, its $1.9 billion in current statutory capital, and actuarially justified rate actions, Groh said.
Past LTCI Rate Increases
Groh and Tom McInerney, Genworth’s chief executive officer, said Genworth increases LTCI reserves when it believes that trends in LTCI claims and the percentage of LTCI policyholders who keep their policies in force makes that necessary.
In the first quarter, for example, fewer LTCI policyholders dropped their policies than the year before, and the percentage who filed new LTCI claims, and the severity of those new LTCI claims, increased, McInerney said.
“Achieving actuarially justified premium rate increases and benefit reductions through our LTC rate action plan remains a high strategic priority for Genworth,” McInerney said.