A sign for the financial ratings agency Fitch ratings Ltd., located within 30 North Colonnade, is seen on a building at the Canary Wharf business and shopping district in London, U.K., on Thursday, March 1, 2012. Moody’s Investors Service said Feb. 14 that Britain may lose its Aaa credit rating. Photographer: Matt Lloyd/Bloomberg (Photo: Jason Alden/Bloomberg)

Some long-term care insurance (LTCI) issuers are counting on interest rates to bounce up fairly soon, and that assumption could get them into trouble.

(Related: 5 Things to Know About 707 Years of Interest Rate Data)

Douglas Meyer and other analysts at Fitch Ratings have given that assessment in a new review of LTCI issuer reserving.

Fitch analysts continue to believe that most of the LTCI issuers they rate have their LTCI exposure under control.

Some issuers now seem to be taking a more careful approach when deciding how much money to keep in their LTCI reserves, according to the Fitch analysts.

But interest rates have been falling, and some issuers are still using discount rate assumptions based on the idea that interest rates will go back up to the historic mean, the analysts say.

The analysts note that some cash-flow testing scenarios show that rates could go down and stay down.

That means LTCI issuers had better be prepared to add cash to their reserves, the analysts say.

“While Fitch expects additional [LTCI] reserve charges in 2020, the exact timing and magnitude are difficult to predict due to inconsistency in regulatory reserve standards and management discretion around potential changes in reserve assumptions based on still-emerging experience,” according to a Fitch summary of the analysts’ assessment.

— Read Fitch: Some LTCI Issuers Look a Lot Better Than Otherson ThinkAdvisor.

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