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Regulators May Hire LTCI Block Extraction Advisor

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State insurance regulators are preparing to hire a legal consultant to help them figure out how to cut bad blocks of long-term care insurance (LTCI) business out of life insurers’ guts without making things worse.

The National Association of Insurance Commissioners (NAIC) has posted a request for proposal for a legal consultant who can sketch out ways for an insurer to restructure or transfer blocks of LTCI business, to separate the LTCI blocks of failed policies from an insurer’s general accounts.

The NAIC also hopes the LTCI-ectomy operation could help the LTCI policyholders in a state that allows LTCI rate increases from having to pay extra to compensate for other states’ refusals to approve LTCI rate increases.


  • A link to the legal consultant request for proposals is available here.
  • An article about an LTCI issuer that’s now in rehabilitation is available here.

The consultant must also “consider the potential risks to states’ guaranty funds, existing legal impediments, and other potential issues,” according to the RFP.

In the United States, the insurers operating in a state back the state’s guaranty fund. In most states, the guaranty associations have few or no reserves. When a member insurer fails, the surviving insurers pay assessments into the fund to make good on the fund’s benefits guaranty obligations.

Proposals from would-be LTCI-ectomy legal consultants are due at the NAIC at 5 p.m. Central Daylight Time Aug. 7.

James Woody is the NAIC contact person from the legal consultant contracting process.

“NAIC reserves the right to reject any or all proposals, request new proposals, or request additional information,” Woody writes in the RFP letter. “NAIC also reserves the right to further negotiate with any or all bidders or cancel this RFP at the direction of its membership.”

The Background

The NAIC has formed a top-level committee to address concerns that bad assumptions, initial underpricing, and low interest rates have saddled many insurers with blocks of LTCI business that are likely to lose large sums of money as the insureds become old enough to file claims for LTCI benefits.

One issuer, Senior Health Insurance Company of Pennsylvania, entered rehabilitation in February.

Wisconsin is working to put another LTCI issuer, Time Insurance Co., into rehabilitation.

Some insurers have argued that they should have mechanisms for disposing of failed blocks of LTCI business.

Some consumers and consumer advocates have argued that regulators should make insurers bear as much of the burden of failures as possible, because, they say, the insurers were the ones that had the most information and were in the best position to protect themselves against any problems.

— Read State Lawmakers to Eye ‘Involuntary Business Transfers’, on ThinkAdvisor.

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