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Genworth Plans to Start Selling Long-Term Care Product in Some States

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What You Need to Know

  • Genworth reported $192 million in net income for the fourth quarter of 2021.
  • The new Genworth LTC business would start out passing on 75% of the insurance risk to a reinsurer.
  • Genworth would sell LTC products only in states that let it adjust the product premiums every year.

Genworth Financial is continuing to move ahead with plans to start selling new, stand-alone long-term care (LTC) benefits products, according to CEO Tom McInerney.

On Wednesday, McInerney said during a conference call with securities analysts that the product menu could include “a new LTC product,” hybrid products and a “non-guaranteed LTC benefit product.”

He did not say whether the hybrid products would provide LTC benefits through a combination with a life insurance policy, an annuity contract, or both life insurance policies and annuity contracts.

However, he acknowledged that concerns about the financial strength of Genworth’s existing stand-alone long-term care insurance (LTCI) business could affect the viability of new LTC products.

“As a result, since last year, we have been working with a third-party reinsurer with an A plus rating from AM Best,” McInerney said. “And we have a new Genworth insurance company, which will only write new business and will not have any legacy LTC business.”

The new Genworth insurer will likely retain 25% of the risk associated with the new LTC policies sold and reinsure 75% with the A-plus-rated reinsurer, McInerney said.

“We expect the level of reinsurance to be reduced to 50% over time,” he added.

Genworth expects to begin by selling the first LTC product only in states that let it change the premiums every year, rather than following the rate stabilization rules that have applied to traditional stand-alone LTCI policies.

“I believe that these innovative forward-thinking states can help rebuild a robust long-term care insurance market that contributes to solving the massive long-term care funding crisis based in the country and that is at the core of Genworth’s multifaceted growth initiatives,” McInerney said.

McInerney talked about Genworth’s LTC market re-entry plans during a call the company held to go over its earnings for the fourth quarter of 2021 with the securities analysts. The call was streamed live on the web, and it posted a recording of the call on its website.

The History

General Electric created Genworth to serve as the home for most of its life, health and annuity operations.

Companies in the GE insurance business were major life and annuity issuers, which helped create the modern U.S. LTCI market. It’s now providing LTCI coverage for 1 million people and paying benefits to 46,730 claimants.

The LTCI business has suffered problems because of inaccurate assumptions about policyholder behavior included in the original prices; the effects of low interest rates on the bond and mortgage investment portfolio used to help support the LTCI product guarantees; and state restrictions on LTCI premium increases.

Genworth has sold or reinsured most of its life and annuity operations. The life and annuity operations it includes in its earnings now get most of the revenue that flows to Genworth from managing investments, rather than from collecting premiums.

The LTCI business still collects about $2.6 billion in LTCI premiums per year.

But Genworth now sells little new LTCI coverage, and it focuses on quarterly earnings reports on the progress of efforts to persuade insurance regulators to let it increase LTCI premiums to more profitable levels.

The company recently put its mortgage insurance business, which still generates new sales, in a separate division, Enact Holdings, which now has its own listing on Nasdaq.

The Earnings

Genworth reported $192 million in net income for the fourth quarter of 2021 on $1.7 billion in revenue, compared with $266 million in net income on $2.2 billion in revenue for the fourth quarter of 2020.

The LTCI business reported $119 million in adjusted operating income for the latest quarter on $1.3 billion in revenue, compared with $129 million in adjusted operating income on $1.3 billion in revenue for the year-earlier quarter.

McInerney noted that the company recently completed one of its regular reviews of its LTCI actuarial assumptions and that trends in the real world have matched what the actuaries had projected. Because actual trends have mostly matched expectations, the company was able to leave the assumptions for people already collecting benefits in place, without making reserve contributions that affected earnings.

But executives said that long-term benefit use has improved more slowly than the company had hoped, and that the company has increased the outlook for its future benefit utilization trend by $4 billion. The company is hoping the it can continue to get future LTCI premium increases approved, and that the premium revenue increases will offset of the slower-than-expected improvement in benefits use.

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Pictured: Tom McInerney (Photo: Victor J. Blue/Bloomberg)