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Life Health > Long-Term Care Planning

S&P Global Upgrades Genworth

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What You Need to Know

  • Six years ago, the CEO was talking to securities analysts about solvency concerns.
  • Long-term care insurance premium increases and a partial IPO of a mortgage insurance unit improved financial flexibility.
  • Lincoln recently cut the cost of a life-LTC hybrd, and Securian is preparing to introduce a new life-LTC hybrid.

A rating agency says Genworth Financial — a company that has faced years of epic battles with long-term care insurance pricing problems — is looking healthier.

S&P Global Ratings announced Friday that it had increased the long-term issuer credit rating it has assigned the Richmond, Virginia-based company to B+, from B.

For retirement and long-term care planners, the news may be one of several signs that the market for LTCI coverage and other long-term care benefits products might be starting to come back to life.

The Background

Genworth was once one of the biggest life insurance and annuity issuers in the country, and a major source of mortgage insurance.

Genworth also helped create the U.S. stand-alone LTCI market. It’s paying LTCI benefits to about 47,000 claimants and still has 1 million policies in force.

The company based the prices for the older LTCI products on inaccurate assumptions about interest rates, how strongly the buyers would cling to their policies, and how often the insureds would use their benefits. Losses ate away at the company’s capital.

The company suspended sales of life insurance and annuities, and it has not recorded significant new LTCI sales in several years.

Genworth has been trying to overcome the LTCI pricing problems, by persuading state insurance regulators to let it increase LTCI premiums.

In 2016, Tom McInerney, Genworth’s CEO, told securities analysts during a conference call that, if regulators failed to approve the increases, Genworth could fail.

The Road Back

China Oceanwide, a Chinese financial services and real estate company, tried to acquire Genworth, but the COVID-19 pandemic and weakening relations between the China and the United States killed that deal.

But Genworth spent years seeking, and getting, LTCI rate increases. In a presentation on earnings for 2021, the company showed that LTCI premium increases accounted for about $655 million of its $3.4 billion in 2021 premium revenue.

The company increased a key indicator of solvency for the LTCI business, the consolidated risk-based capital ratio for its U.S. life insurance companies, to 290%, from 229% at the end of 2020.

Genworth has set up a Global Care Solutions unit, under the leadership of Joost Heideman, and has talked about the possibility of bringing an LTCI policy with adjustable rates to market.

Genworth has also raised cash by selling mortgage insurance operations located outside the United States, and it has used reinsurance deals to free up the capital tied to old blocks of life insurance and annuity business.

In September 2021, Genworth raised $535 million by selling a 19.4% stake in Enact, its U.S. mortgage insurance business, to the public, through an initial public offering.

S&P said it increased Genworth’s ratings partly because of the impact of dividends from Enact on the company’s liquidity and financial flexibility.

Dan Sheehan, Genworth’s chief financial officer, said the company hopes to get holding company debt below $1 billion this year, and “evaluate returning capital to shareholders.”

Other Companies

Lincoln Financial, National Guardian Life and Securian have also had long-term care product news.

Lincoln Financial announced in February that it’s lowering the prices for two policies that combine long-term care benefits with universal life insurance.

National Guardian Life recently unveiled new marketing materials for its stand-alone LTCI product.

Securian is preparing to introduce a hybrid life insurance and long-term care product in March.

Interest rates are rising, and higher rates could still pump more life into the LTC market, by increasing the yields on the bonds used to support LTCI obligations. Claude Thau, an LTCI specialist, noted a 1 percentage point increase in rates could increase the revenue of an insurer with a $10 billion book of in-force LTCI business by $100 million.

What It Means

Even with premium increases, stand-alone LTCI has been a relatively inexpensive vehicle for maximizing the amount of long-term care benefits per premium dollar.

For retirement planning specialists and their clients, the question will be whether to accept uncertainty about prices, to maximize long-term care benefits, or to use annuities or life/long-term care hybrids to provide a more flexible, more predictable arrangement that could be used to pay for long-term care or for other post-retirement expenses.

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