A line chart showing rates have falling sharply since March Here’s what 10-year bond rates have done since January. (Credit: Federal Reserve Bank of St. Louis)

Falling interest rates seem to be hitting issuers of long-term care (LTC) hybrid products hard.

Actuaries at Milliman have included comments supporting that assessment in a new summary of results from an LTC hybrid issuer survey.

Seven of the nine carriers that participated said they had increased LTC hybrid prices at least once in the previous 12 months, and two said they had repriced their products three or more times.

“The low interest rate environment was reported as a factor by all seven participants,” according to the Milliman actuaries. “None of the participants indicated that mortality impacts due to COVID-19, adverse mortality experience, or change of profit target drove the repricing.”

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Carl Friedrich, Sue Saip and Al Schmitz are the Milliman actuaries in charge of the survey.

Milliman attracted 11 participants to a similar LTC hybrid survey conducted a year earlier.

An LTC hybrid is a product that combines LTC benefits with an annuity or life insurance policy, in an effort to ensure that a purchaser who never actually needs long-term care will still get some value from the product.

Life insurers believe that providing LTC benefits through a hybrid product may be safer for the insurer than providing benefits through a stand-alone long-term care insurance (LTCI) policy, because the performance of the underlying life policy or annuity contract might  compensate for any problems with predicting the performance of the LTC benefits provisions.

All of the participants in the new Milliman survey base their LTC hybrids on life insurance policies, rather than annuity contracts.

Four of the carriers said they combine LTC benefits with universal life policies with secondary guarantees; three, with universal life policies without secondary guarantees; two, with non-participating whole life; one, with participating whole life; and one, with indexed universal life insurance.

Interest rates matter to LTC hybrid issuers because life insurers use huge piles of bonds and other fixed-income investments to support the benefits they offer through LTC hybrids. Low interest rates hurt what insurers can earn on their bonds.

Single-Pay v. Periodic Pay

In the past, sellers of stand-alone LTCI said one weakness of LTC hybrid programs was that many hybrid programs involved use of single-pay products, meaning that they were suitable only for consumers with large pots of cash available.

The new Milliman survey includes nine issuers with single-pay products, and eight that let the buyers make periodic payments.

Four of the issuers of single-pay products said sales were up, four said sales were down, and one said sales were flat.

Six of the eight issuers with periodic-pay products said sales were up, and two said sales were down.

Why Sales Changed

The issuers with good hybrid sales told Milliman that company interest in selling LTC hybrids, wholesaling support, new product features, and competitive pricing helped hybrid sales.

The issuers with soft sales said the main challenges were price increases, the overall market environment, competition and COVID-19.

Seven of the nine issuers said their companies had changed issue age limits or other product parameters as a result of COVID-19.

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