Surge in LTC rates coming for policyholders in many states

Oct. 26, 2021 — Long-term care insurers are filing for sometimes hefty boosts in premiums for their policyholders, according to recent rate filings now showing up on state regulatory systems. These rate hike requests come as companies and regulators continue their attempts right-size the industry’s liabilities whiles the real-life costs of people living longer, with increased chronic medical conditions in a low-interest rate environment continue to trounce decades-old –or even more recent — actuarial assumptions.

Besides addressing the urgent solvency needs of many of these books of LTC legacy business, increases in rates toward more sustainable levels could nudge some LTC blocks into a more attractive space for risk transfer and private equity market, which has so far has not seen much in the way of pricing to take these blocks off the hands of insurers, according to industry analysts.

Many of the premium hikes on these policies for older Americans will be implemented over a period of a few years, if approved and many reflect a newer book of business, written in the aughts. Most companies are not longer marketing traditional LTC, as insurers try to modernize retirement offerings with hybrid annuity or life products with LTC riders.

Genworth Life Insurance Co. has asked for a premium rate increase of 62.6% for policies with lifetime benefits and 31% for policies with limited benefits on certain LTC policies in North Carolina. This request is part of its ongoing multi-year rate action plan which involves getting approval for a cumulative premium rate increase of 163% over the period of three to six years for policyholders with lifetime benefits and 95% over the period of three to six years for policyholders with limited benefits.

GLIC had already sought mid-high double-digit in previous rounds of its rate action plan, according to its senior actuary’s rate filing and public documents on its rate action plan progress in the past few years.

Genworth is also proposing options for policyholders to adjust their benefit coverage down to decrease their rate hikes. Under one new option, policyholders would have a three-year benefit period based on an industry consultant’s study that showed that average duration for an LTC event is about three years.

United of Omaha Life Insurance in Nebraska filed in Ohio this past summer, asking for a nationwide increase for certain LTC policies in the range of 6.7% to 155.4% over three years, with an overall average increase over that period of 118.8%. For example, the proposed rate increase for 2022 will range from 0.0% to 38.0%, with an average increase of 34.9%, the actuarial filing explained.

This effort is to raise premiums in the state to the nationwide level, according to the actuary’s filed memo. United of Omaha policyholders will also be offered options to reduce the impact of the proposed rate increase, including a reduction in the maximum daily benefit and a reduction in the inflation option as well as a reduction in the benefit period. The premium increase target implementation date for the first round of increases premium increase is Jan. 1, 2022, and yearly for the next two years after that.

Allianz Life Insurance Company of North America has been asking the state of Maine for rate increases of 20% to.65% for policies underwritten in the state between 2004 to 2006, noting the lifetime loss ratios without the increases will be well over 100%.For actuarial modeling purposes the requested rate increase is assumed to be effective December, 2021. The company has been going back-and-forth with regulators, according to filed memos, to provide additional rationale and data backed by actuarial analysis to justify the request, which is still pending state action, according to the SERFF database.

Bankers Life is asking the state of Rhode Island for a 40% rate increase on LTC policies “due to higher than anticipated future and lifetime loss ratios.” The company pointed to lower than expected mortality experience on these policy forms, resulting in inadequate premium rates over the lifetime of its LTC policy forms. These policies were generally sold between 2005to 2009.

CMFG Life Insurance Co. is asking Kansas and other states where its individual LTC policy was issued for a 36.8% rate increase or with an initial 11% rate increase followed by an additional 11% increase one year later and another 11% rate increase in the third year “because the current estimate of the nationwide lifetime loss ratio is in excess of expected.” It is also offering a reduction in benefits menu to policyholders.

Continental General Insurance Co. filed for a 15% increase in Texas. However, the company aid it believes that a 21% increase is actuarially justified. However, it wants to be in alignment with the insurance department’s expedited review process, according to its filing with the Texas Department of Insurance. Continental added that given that the requested rate is less than the justified rate, it does anticipate requesting future rate increases on these LTC policies which were originally sold under the name Loyal American Life Insurance Co. or United Teacher Associates Insurance Co. It is assuming a June 2022 implementation date.

The National Association of Insurance Commissioners has been trying to make rate increase approaches more consistent across states so some jurisdictions allowing for higher premiums to reflect ongoing claims costs are not subsidizing others who have granted anemic increases. This review is meant to result in actuarially appropriate increases being granted by the states in a timely fashion while getting removing cross-state rate subsidization. 

While rate hikes are not popular or welcome, of course, with the public or state insurance regulators, the NAIC has noted, along with many other industry experts that “misestimation of initial pricing assumptions has made it necessary for insurers to increase LTCI rates to ensure their future solvency.” 

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#GNW, #ALV.DE, #ALIZF, #CNO,

FSOC tasks insurance industry authorities to make climate risk a bedrock of their oversight

FIO will undertake extensive work in coordination with states as FSOC points to international coordination efforts a guide

Oct. 22, 2021 — The Federal Insurance Office at the U.S. Treasury Department will suit up on orders from the Financial Stability Oversight Council to examine how climate change will affect both insurance and reinsurance coverage, especially in those regions of the country most affected by climate change.

And there is no time to waste–FIO “should act expeditiously,” said FSOC, which is led by Treasury Secretary Janet Yellen.

This is one of many recommendations made by the Treasury-led panel of top financial regulators as part of its new report on climate-related risk released Oct. 21. It is a tall order, and includes investments made in bonds, equity markets, real estate and private funds and financial vehicles as well as pricing issues and availability of insurance in hard-hit and historically underserved and financially vulnerable areas.

The report, part of the Biden Administration action plan for addressign climate change also calls for more internal investment in staff and climate change, risk and tech experts from all member agencies or groups and sharing, methodology, coordination of standardization of data and analystical tools so everyone is speaking the same language with regard to climate risk scenarios.

One recommendation that couldpotentially change the data-sharing practices of both the insurance industry’s and its state insurance regulators is to have FSOC members make “all climate-related data for which they are the custodians freely available to the public, as appropriate and subject to any applicable data confidentiality requirements.”

The FSOC will also birth a new staff-level committee, the Climate- related Financial Risk Committee (CFRC) within the next two months. The CFRC will have its own hand-picked advisory committee and will serve as as a coordinating body for the eforts of the members and interested parties, helping it hthe standardization of data language and tools across the member agencies. The Office of Financial Research at Treasury will help form a data backbone for the new committee as it identifies, hosts and gathers climate risk and fianncial data to analyze.

The recommendations are extensive and span about seven pages to conclude the report, create building blocks to the final goal of assessing and mitigating climate risk and to financial stability and providing coverage to all who need it, if not through the private insurance market, than through state or federal pools or backstops.

The report also gave props to international efforts in climate change financial risk assessment and preparations as well as pointed out international regualtory or financial stability forum analysyes that had found short-comings or data gaps here in the U.S.

“FSOC members will likely need to procure or collect and use data with which they may have limited experience, such as climate-related data, projections (or scenarios) of climate risks, and scenarios of financial and economic outcomes based on climate scenarios,” the report stated. FSOC’s 15 members, 10 of whom have voting power, “will need to take steps to ensure data is in a usable format—for example, addressing data inconsistencies or data aggregation challenges. They will also need to utilize new methodologies and metrics to quantify physical and transition risks that do not have generally accepted definitions and standards,” the report stated.

The Council recommended that its members, who include the chairs of the Securities and Exchange Commission and the Federal Reserve Board, a state insurance regulator sometimes represented by an National Association of Insurance Commissionersexecutive and an independent member with insurance expertise, “coordinate with their international regulatory counterparts, bilaterally and through international bodies.” One of the goals is to address data gaps and work toward the goal of standardizing data formats and structures to promote comparability.

The report did make reference to efforts out of the NAIC and the SEC in 2010.

The SEC “remind[ed] companies of their obligations under existing federal securities laws and regulations to consider climate change and its consequences as they prepare disclosure documents to be filed with us and provided to investors” 11 years ago while the NAIC adopted the Insurer Climate Risk Disclosure Survey, adopted by the NAIC in 2010.

California, Connecticut, Minnesota, New Mexico, New York, and Washington now require U.S. insurers or insurance groups that, on an annual basis, write more than $100 million in direct premiums to complete the survey.With eight additional states plus the District of Columbia added to the roster, the survey participant coverage will extend to 78% of U.S. direct premiums written, according to the FSOC report, citing the NAIC. The eight additional states are Delaware, Maine, Maryland, Massachusetts, Oregon, Pennsylvania, Rhode Island, and Vermont.

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No brakes on PE deal-making for fixed & VA blocks with more transactions seen in months ahead

Oct. 14, 2021 — The fourth quarter is expected to maintain galloping pace of risk transfer deals as private equity firms expand their share of the life insurance market.

Fixed annuity blocks are capturing the attention of asset managers and analysts as buyers and sellers work out bid/ask prices and firms hire more deal-makers as life insurers seek to shed interest-rate sensitive long-term liability blocks.These blocks currently tend to be annuities and long-term care insurance blocks, although the latter, still heavily beleaguered by historically insufficient premiums despite occasional rate increases, are not finding buyers as readily.

The Federal Insurance Office at the U.S. Treasury is also paying attention to the exponential growth in the past few years to insurance liability risk transfer deals as insurers pivot to less capital-intensive products in this chronic low interest rate environment.

In its annual report delivered in late September, it pointed out that the cash and invested assets of PE-owned life insurers totaled more than $471 billion at the end of 2020 —that’s 11% of the U.S. life insurance industry total. FIO also estimated that the offshore reinsurance affiliates of these PE firms are over $137 billion. 

FIO expressed concern that some potential PE firms investments in reduced liquidity vehicles or investments in highly market sensitive areas such as residential mortgages or collateralized loan obligations “could diminish the insurer’s ability to meet unexpected cash demands.” The Dodd Frank (2010) Act-created office also expressed a touch of concern about “reliance on offshore captive reinsurers” and complex affiliated investments jacking up the complexity of the group’s structure.

Still, this federal monitoring of the deals and the state insurance departments oversight of them should not dampen the market’s enthusiasm or state insurance regulator’s approvals for deals. 

In fact, one person close to the PE interests noted that corporate lending has moved from regulated banks to private lenders who have better loan underwriting and oversight infrastructure, with investors expecting prudent use of capital. 

So, whose next?

MET is one of the only companies that has expressed interest in doing risk transfer on the legacy book without having done a transaction to date.”

The analysts’ review concluded that the risk transfer opportunities for MetLife likely involved smaller block deals in either life insurance or fixed annuities.

On Oct. 8th in an analyst note, Evercore’s Thomas Gallagher and his team also identified, in addition to MetLife, Ameriprise Financial, Principal Financial Group and Equitable Holdings as potentially next-at-bat to make a deal to sell or reinsure their annuity liabilities, as the “risk transfer engine keeps revving.”

Recent headline deals include Lincoln Financial Group’s mid-September agreement with a subsidiary of Resolution Life, to reinsure about $9.4 billion of in-force executive benefit and universal life reserves, resulting in about y $1.2 billion of capital. It plans to use much of the capital to buy back shares. Brookfield Asset Management Reinsurance Partners Ltd. just announced it had closed its previously-announced deal to reinsure up to $10 billion of annuity products issued by American Equity Investment Life Insurance Co., split between $4 billion in-force and another $6 billion liabilities on a flow basis. 

The banner year began with Allstate announcing it was selling off its life insurance unit to Blackstone for $2.8 billion. This followed 2020’s big summer splash when global investment firm’s KKR announced a deal to buy 60% of fixed annuity provider Global Atlantic, a deal valued at $4.7 billion, closing in early 2021. Based on preliminary financials at year-end 2020, the estimated value of its assets to be managed by KKR at closing was $90 billion, Global Atlantic stated in a Feb. 1 press release. 

Although not a PE transaction, Prudential Financial  did ink a deal with Fortitude Group Holdings, parent of Bermuda’s Fortitude Re, to sell a portion of its in-force legacy variable annuity block for $2.2 billion. Prudential explained in a Sept. 15 press release that the de-risking transaction for 17% of its annuity block will help it reduce exposure to traditional VAs with guaranteed living benefits and capital markets sensitivity.

To prepare for more expected deal-making, leading M&A firms are adding to their stable of insurance transactions and regulatory and legal experts. For example, Willkie Farr & Gallagher LLP announced Oct. 6th it had added Prakash “PK” Paran, as a partner in the Insurance Transactional and Regulatory Practice along with new expert reinsurance transaction counsel, adding to a slate of new partners added in April. 

Expect more additions to well-known brands.

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Pru bolsters statutory reserves by $300-plus million for unlocated GAC annuitants, fined $1.2 million

Sept. 10, 2021 — Prudential Insurance Co. of America (PICA) and Prudential Retirement Insurance and Annuity Co. (PRIAC) have added about $302 million in statutory reserves to accommodate potential payouts for thousands of missing annuitants in guaranteed group annuity contracts, according to an April 2021 market conduct exam.

The penalty also included a sanction of $1.2 million by the state of New Jersey.

Prudential Financial Inc.’s subsidiary companies identified 13,911 unlocated annuitants as of January 2018 and an almost 4,000 additional missing annuitants on May 1, 2020, who were not caught in the scope fo the initial regulatory exam due to a data deficiency in the initial search criteria, the exam stated.

Statutory reserves related to the missing unlocated annuitants had been understated, thus requiring a bolstering of reserves, state regulators found.

To remedy this, Prudential posted an additional $218 million in statutory reserves as of Dec. 31, 2019 and then an additional $84 million in statutory reserves as of June 30, 2020, to address the situation. The lion’s share of the reserves added were for PICA’s missing annuitants. 

The situation stems from Prudential’s pension risk transfer (PRT) business under which plan sponsors at usually large companies buy annuity contracts from the insurer for their plan participants as a way of offloading risk. 

Prudential has been in the PRT business since 1928 and is a leader in the market. Its total annuitant population under GAC was about 1.9 million three and a-half years ago, according to the exam. 

The company told regulators that it inserted standard valuation laws as not requiring reserves for unlocated annuitants although it considers them “prudent” to hold them.

Before June 30, 2018, the company “released reserves associated with unlocated annuitants from GACs and did not hold reserves for unloaded annuitants for statutory accounting purposes,” the exam stated. This was due to the financial immateriality of the block of business, it claimed. Total GAC reserves for PCA as of year-end 2019 were $69 billion for PICA and $3 billion for PRIAC.

Hartford-based PRIAC is in the process of an acquisition proposition by a Denver-headquartered subsidiary of Great-West Life & Annuity Insurance Co., Empower Retirement. The price tag for Prudential’s full-service retirement business is $3.55 billion according to M&A documents. The transaction is subject to a public hearing by the Connecticut Department of Insurance once the application, filed Aug. 17, is deemed complete.

However, Prudential agreed it would ask for the insurance commissioner’s approval to reduce its reserves in the future for unlocated annuitants. 

The reserve impact associated with introducing a location contingency into the statuary reserve calculation was about $97 million between the two companies, according to the exam. 

Regulators did note that the number of located annuitants changes constant, with new ones added to the list and found annuitants removed. The exam did give props to Prudential for locating most missing annuitants within the first two years of their retirement date. 

The addition to statutory reserving have no impact on GAAP reserves and is said to be considered fully resolved. 

The exam, officially led by Prudential group-wide supervisor and lead state New Jersey, with the Connecticut Department of Insurance participating in relation to its domiciled company, PRIAC, found certain failures related to procedures to contact annuitants of reimbursement contracts approaching a normalized retirement date, along with some other administrative shortcomings retaliated to documentation and privacy notices. 

State regulators had given companies, under the subsidiaries of industry giant Prudential Financial Inc. until the end of September to confirm corrective actions noted in the internal audit and implement safeguards, which is not seen as a problem, as the company finished its own internal audit at the end of 2020. 

The exam is signed by David Wolf, examiner-in-charge of the New Jersey Department of Banking Insurance. Wolf and the NJ DBI did not return requests for information. 

The missing annuitant situation can be substantial to a company if it goes deep and wide enough and involves extensive and material shortcomings identified by the state regulator and federal oversight agencies.

This was the situation with MetLife Inc. a few years ago. It paid almost $20 million in a settlement with New York regulators and pay group annuity contract policyholders hundreds of millions in total in delayed or retroactive benefits to more than 13,700 missing GAC policyholders. Unlike MetLife, Prudential didn’t uncover a material weakness in its financial reporting nor did it have Securities and Exchange Commission filings or a steep penalty levied by the federal investments overseer. MetLife did try to reach the annuitants twice in letters before writing them off, which was considered inadequate by regulators. Prudential’s systems keeps the annuitants on its systems and they are searched for until found or death is confirmed, according to New Jersey’s market conduct exam findings. 

Even now, MetLife and the U.S. Department of Labor have recently locked horns over a subpoena the agency issued over the missing annuitants.

According to a summary by health and benefits firm Mercer, the DOL first opened an investigation “to determine whether MetLife, the plan sponsors that purchased GACs or anyone else involved in the transactions violated ERISA” in 2019 and then subpoenaed MetLife this year, looking for more information about how the New York company was planning on its internal fixes. MetLife argued that DOL does not have jurisdiction over state insurance law and that this was not an ERISA matter and DOL went to court to try to enforce its subpoena, claiming it does have jurisdiction over unpaid benefits under ERISA.

FIO adopts leadership role in climate change risk; eyes tools to collect & measure data for solvency & improve consumer coverage

UPDATES with NAIC COmment Sept. 7th

Aug. 31, 2021 — The Federal Insurance Office is teeing up a potential apparatus for only the collection of data from insurers on climate-related financial information as well as staking out a fleshed- out leadership role in insurance supervisory-adjacent and market-based best practices.

It is acting to fulfill an existing presidential Executive Order on climate change risk to the financial sector in its own arena of insurance and made clear it intends to undertake a thorough and all-encompassing job. The US. has experienced a dramatic increase in the frequency and severity of climate-related disasters with a corresponding increase in economic losses in the past 40 years, it stated.

FIO issued a request for information (RFI) in a formal notice Tuesday to get feedback on how it could work with the insurance industry, stakeholders and state regulators in monitoring, assessing and mitigating climate change financial risks, including through the use of data collection and a possible open-source centralized database. It also includes a sharp focus on improving insurance coverage and prices in underserved communities.

In its lengthy request, FIO suggested it might look under the hood of the existing state insurance regulatory framework to gauge whether the state system’s oversight is capable, as is, to maintain financial stability maintenance with climate change events bearing down on the country in the years ahead. 

The U.S. Treasury Department-based office asks a series of questions that reflect a need for much more detailed information from insurers on everything from underwriting to investing, and how it can best meet three climate-related priorities it has now laid out. 

In doing so, FIO was not shy about its new role in climate change risk assessment. It said it plans to increase its engagement on these issues by taking “a leadership role in analyzing how the insurance sector may help mitigate climate-related risks.” 

The three areas FIO, led by Director Steven Seitz, is addressing are insurance supervision and regulation, insurance markets and mitigation/resilience and insurance sector engagement. 

FIO stated it plans to examine existing state supervisory practices and resources.These will include, at a minimum, examination policies and procedures, solvency assessment and techniques, data availability and integrity, public disclosures, modeling and even stress testing.

The 2010 Dodd-Frank Act-created entity warned it could go ahead to fill any “gaps” —if any — in existing insurance supervision, if they exist, with regard to climate-related financial risks. This is a function of its intent to maintain financial stability. 

It is uncertain how FIO would go about filling any gaps it found.

The watchdog office has the power to monitor, collect data, enter into information-sharing agreements with states advise the Treasury secretary, pre-empt state law in narrow circumstances and has subpoena powers, as well, related to international covered agreements and in the less favorable treatment of a non U.S. insurer than a domestic insurer.

President Biden’s May 20, 2021 executive order told the Treasury secretary to have FIO “assess climate-related issues or gaps in the supervision and regulation of insurers” as part of the Financial Stability Oversight Council‘s analysis of financial stability, and to identify, with state regulators, the potential for major disruptions of private insurance coverage in areas vulnerable to climate change impacts…” Treasury Secretary Janet Yellen chairs the FSOC and has a broad directive to undertake climate change risk assessment and remediation work.

A big financial risk concern the new RFI revealed is a “lack of available data” for assessing climate change risk to the balance sheet of insurers. 

State insurance regulatory efforts like the Own Risk and Solvency Assessment (ORSA) that measure for risks that have a material impact on solvency might be too short-term in scope, according to FIO. “These tools may be inadequate to assess climate-related risks, particularly over a longer time horizon,” it aid in the request. FIO also warned that “only six states have regularly collected high-level qualitative data” from insurers on specific climate-related financial risk, citing the National Association of Insurance Commissionerswork

“No federal authority is collecting climate-related financial data specific to the insurance sector,” FIO stated, hinting it could step in to do so. 

In fact, one of the RFI’s 19 questions asks about the advantages and disadvantages of an “open-source, centralized database” for climate-related information on the insurance sector.

Another question asks how FIO can “assess the efforts of insurers, through their underwriting activities, investment holdings, and business operations” so that the industry could meet the U.S. climate goals, including reaching net-zero emissions by 2050. This indicated the federal office might take a hard look into the nuts and blts of measuring risk and setting premiums.

FIO’s engagement with insurance sector “could include insurance sector consideration of underwriting activities, investment holdings, and business operations to support a low emissions economy.” It is unclear what the consideration might entail and if it would result in advice or a best practices framework. 

Climate change’s impact on the availability and affordability of insurance in the private sector is also a focus of the new FIO request.

The office indicated it intends not only to assess coverage in high risk areas and in traditionally underserved markets and communities but to also find solutions to unfair and disparate treatment and coverage inadequacies.

For example, FIO could come up with a best practices model for mitigation in disasters and ways to get more affordable coverage and wider-spread coverage to consumers that need it.

However, the industry and existing state and federal laws might put pressure on the wide-ranging scope of FIO’s intended project. Some say that FIO’s requests and plans are no surprise with no change is imminent. FIO has been operating since 2011 when it opened its doors under its first director, Michael McRaith, who served through the end of the Obama Administration and helped forge the covered agreement on reinsurance collateral with the European Union. FIO also has other roles with the the federal terrorism risk insurance program and in its many reports and consultations.

Nevertheless, FIO sees climate change creating a dangerous snowball effect in the creation expansion of pools for high risk areas run by state and federal government and impacts to economic and financial stability long-term, for which the Administration will want some solutions.

The office also plans to do a deep dive into the insurability of disasters like including wildfires, hurricanes, floods, wind damage, and extreme temperatures caused or made worse by climate change. 

The NAIC responded through a spokesperson by noting it was aware of FIO’s request for information on climate risk and insurance and that it welcomed the Treasury’s interest in the important issue of climate change risk, which it has been working on for over a decade through its membership, it said.

In addition, “there is extensive ongoing work in the areas of disclosure, pre-disaster mitigation, solvency monitoring, and innovation, as well as extensive engagement and coordination with federal and international counterparts,” the NAIC said. “To the extent FIO has questions about state insurance regulation or NAIC’s ongoing workstreams in the area of climate risk, we welcome opportunities for dialogue and collaboration to inform their work.”

Comments are due Nov. 15 through the Federal eRulemaking Portal at http://www.regulations.gov.

Court approves insolvent LTC insurer SHIP’s rehabilitation plan

UPDATE: Find the approved rehabiliation plan posted by the court on Sept. 30 here:

Aug. 26, 2021 — The Commonwealth Court of Pennsylvania has approved the amended rehabilitation plan for insolvent long-term care insurer, Senior Health Insurance Company of Pennsylvania (SHIP.) 

The rehabilitation will address SHIP’s “hazardous financial condition” involving about 39,000 in-force policies by increasing premiums and shaving benefits in many cases, according to the court. 

The goal is to avoid liquidation fo the company and a spill of all its liabilities into the state guaranty funds, where benefits could be more severely capped. 

SHIP has a deficit of about $1.2 billion, reflecting $1.4 billion in assets and $2.6 billion in liabilities. It was licensed in 46 states and had issued 645,000 LTC policies, covering services provided in nursing homes and assisted living facilities, as well as home-based health care services and adult day care. 

About 13% of SHIP’s LTC policyholders are on claim, and the Pennsylvania-based rehabilitator expects that number to rise to 32% by 2050., the court’s approval order stated. The order calls for the rehabilitator, the Pennsylvania Insurance Department regulators, to submit an actuarial memo on rates to use in the first phase of the effort, according to a court decision Aug. 24.

In her decision, Judge Mary Hannah Leavitt rejected the arguments of the intervening state regulators from Maine, Massachusetts and Washington State for an opt-out provision of the plan. 

She focused on how the plan would give existing policyholders as much choice as possible in their more narrow outcomes, given the state of the company.

“The Plan is structured to maximize policyholder choice in several ways. Depending on his circumstances and preferences, a policyholder may choose to continue his policy with all benefits and terms unchanged by paying the actuarially justified annual premium for that policy. Alternatively, the policyholder may choose to reduce some policy coverages as more suitable to the policyholder’s current circumstances in order to avoid or temper a premium increase,” the judge noted. 

She offered the example of a 95-year-old policyholder, as SHIP’s customers now are aging seniors.. 

This senior citizen might decide to reduce the maximum coverage period from 10 to five years instead of paying the premium required for a policy with a 10-year period of coverage, she stated. 

The rehab plan also intends to smooth out premiums for similar coverages as currently, SHIP policyholders pay very different rates for the same amount of benefits. This “discriminatory” rate structure is a results of decisions of different state regulators on SHIP’s proposed rate increases, according to Leavitt. 

“Policyholders whose state of issue has approved the requested rate increase pay more for the same coverages than policyholders whose state of issue has disapproved the requested rate increase. As a result, the former group of policyholders pays more than its fair share of the costs of providing the coverages and the latter group pays less than its fair share,” Leavitt wrote.

The Commonwealth Court’s decision following mid-May 2021 hearings.

SHIP filed an rehabilitation application in April 2020 and appointed the Pennsylvania Insurance commissioner to serve as rehabilitator of SHIP and to “ take steps to address SHIP’s financial challenges; and to protect its policyholders and other creditors.” The Pennsyvlani regualtors filed an amended plan in October 2020.

SHIP, founded in 1887 as the Home Beneficial Society, continues to see its financial condition deteriorate. Prior to the filing for rehabilitation in January 2020, it was licensed to do business by state regulators. It has not sold new policies since 2003 and was once part of  Conseco Senior Health Insurance Co.

The states with the most SHIP LTC policies in force as of Dec. 31, 2020, are Texas, Florida and Pennsylvania. The three states represented by the intervening state regulators in this matter have much fewer policies in force, according to the court opinion and order.

For more on how this affects policyholders, see: https://www.investopedia.com/ship-policyholders-face-hard-choices-under-rehab-plan-5199055

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New York regulator balks at life insurers’ new powers to assume improved policyholder mortality

Aug. 18, 2021 –A new amendment that allows life insurance in an industry beleaguered by low returns has sparked concern from New York State insurance regulators. 

During the final meeting of its summer conference on Aug. 17, the National Association of Insurance Commissioners adopted an amendment that allows insurers to use in their calculations a “prudent” level of mortality improvement for their contracts beyond the valuation or contract-setting date. This move would allow life insurers to cast a bet that mortality improves over time when calculating the reserves they put aside to back policies.

“Insurers should not be allowed to assume that experience improves from where things are today when setting their reserves,” New York Department of Financial Services’ top insurance regulator Mi Chi To cautioned fellow commissioners at the meeting of the executive/plenary committee in a hybrid live/video-streamed meeting.

In her argument, she cited the unknowns of the long-term effects of Covid-19 on mortality as well as the pressures life insurers were under in today’s challenging persistent low interest rate environment

The sustained low interest rates impact industry reserve margins and capital adequacy, according to Fitch Ratings, as it outlined in a December 2020 wire report. These now chronic low interest rates impact all major product lines of life insurers , particularly guaranteed universal life insurance, payout and other fixed annuities, and long-term care insurance, Fitch said. In general, better mortality assumptions decrease the need for heftier reserves. 

New York’s To said that the newly-adopted NAIC measure flies in the face of not only fundamental principles of statutory accounting, but also of ultimately of consumer protection.

Despite the votes not being in her favor among fellow regulators, she advised that insurers should not be allowed to assume that experience improves “from where things are today” when setting their reserves.

It is not clear whether her concerns would lead to any action or separate regulatory guidelines at some point from the New York DFS for insurers doing business in the state. 

“At minimum, we respectfully believe that it is really an awkward time to be considering the possibility of changing mortality assumptions in the middle of during a pandemic at a time when unfortunately no one knows the lasting effects of Covid on future mortality,” To said.

The American Academy of Actuaries and the Society of Actuaries noted in a joint presentation last December to the NAIC’s Life Actuarial Task Force that Covid-19 could have potential longer-term impacts that could come from survivors with impaired health as well as from their delays in healthcare and testing during the pandemic. 

The amendment, known as 2020-10, was adopted by the task force Aug. 12 at its meeting. 

Another SOA slide deck presentation to the NAIC in August citing Centers for Disease Control and Prevention statistics showed mortality rates for 2020 increased 4.4% over 2019, excluding Covid. With Covid, they were 16.1% higher. Heart issues as a cause of death had its largest increase in 20 years in 2020, according to the statistics while lower cancer steadily continued as a trend.

Before Covid, in 2019, life expectancy at birth was 78.8 years for the total U.S. population, an increase of 0.1 year from  2018, according to the CDC

But setting sufficient reserves come first, according to New York’s executive superintendent for insurance. 

“We, of course, understand the immense pressure life insurers are under in terms of setting their reserves given how long interest rates have remained at extremely low levels. We know this is a critical issue for the industry,” she said.

She said solvency regulators “are all laser-focused” on the reserve challenges of life insurers. “We are certainly open to discussing whether there are any regulatory changes that would be appropriate to provide relief to address this issue, but we really do not believe this amendment is the solution,” To said.

Insurance commissioners from New Mexico and Louisiana joined New York in opposition to the measure, saying they shared her concerns about the new allowance to assume mortality improvement past the valuation date of life insurance policies. 

Biden to FSOC: Get to Work on Climate Change Financial Risk Now

May 21, 20121 — The Financial Stability Oversight Council got its marching orders Thursday from the Biden Administration –make climate-related financial stability and other financial risks a priority.

The Executive Order is a plan to put this in place throughout the federal government, to be led among the financial regulatory agencies by Treasury Secretary Janet Yellen, chairperson of FSOC. The approach is part of a “whole-of-government approach to Mitigating Climate-Related Financial Risk,” according to the EO.

In a statement, Yellen said she will be prioritizing this work while noting that, back in March, she had kicked off her first FSOC meeting as chair (she had been an FSOC member as Federal Reserve Board chair previously and gave a shout-out to the work the Fed is doing on climate risk) discussing climate change.

Highly-engaged FSOC members have already begun analyzing the issues within their jurisdictions, Yellen said in a statment following the climate-related financial risk EO yesterday.

The next FSOC meeting is scheduled for June 11. Although the preliminary agenda calls for the meeting includes money market mutual fund reform and the transition from LIBOR and money market mutual fund reform, climate change discussions are now a prioerity and will likely get attention.

Yellne promised yesterday that FSOC will work with its members to bolster climate-related financial disclosures and other data dources to improve measuring potential risk and exposure.

Yellen is tasked as FSOC chair under the EO with publishing a report before the end of the year on ecommendations to mitigate finanial stability risks, including in the insurance sector. In the insurance sector, FSOC has a voting independent insurance expert member, Tom Workman, and a nonvoting member, the director of the Federal Insurance Office, Steven Seitz. There are 10 voting members total. Five members who do not have a vote act in a an advisory role.

“This work will be challenging, and we cannot delay this hard work any longer,” Yellen said in her statement.

Yellen intends to increase the scope of the climate change risk assessment and mitigation efforts as part of a global effort, as well.

“I will also work to ensure that Treasury engage fully with our global partners through the G-7, G-20, and Financial Stability Board, helping to promote a strong and consistent global approach. Our pensions, our savings – our future livelihoods – depend on the financial sector to build a more sustainable and resilient economy. We all need to have the best tools and the best data to make well-informed decisions,” the Treasury secretary said.

Sen. Dianne Feinstein, D-Calif., who authored the pending  Addressing Climate Financial Risk Act, to help ability of federal regulators deal with climate change risk within the financial system, responded to the EO by noting that risks are greatly impacting the insurance sector and its customers.

“Reducing our carbon emissions is the best tool to fight climate change. But climate change is already creating a strain on our financial system. For instance, wildfires are driving up property insurance cost, making it less available. Farmers are being forced to contend with more severe droughts. And sea-level rise is undermining homes and critical infrastructure,” Feinstein said in a press release yesterday following the EO,” Feinstein stated in a press release.

Feinstein also wrote a letter to Seitz at FIO last September asking for a report on the effect the scourge of increased wildfires have and will continue to have on private insurance markets and recommendations to make the market more affordable in the face of these increased risks.

A digital review of several most recent FSOC annual reports found that climate change and severe weather like wildfires and rising sea levels were not even mentioned. When fire was discussed it was only in reference to “fire sales,” or the disorderly liquidation of assets to meet margin requirements or other urgent cash needs.

This is happening not a minute too soon said a source previously associated with FSOC. This person noted some California insurers have been at the forefront of trying to assess and mitigate climate change risk from the beginning.

In a March 2021 article for American Progress calling for a more vigorous FSOC, its associate director for economic policy Gregg Gelzinis broke down the threats: “The increase in frequency and severity of wildfires, floods, hurricanes, droughts, and other weather events will decrease the value of physical property, disrupt supply chains, compress corporate profits, drive up insurance claims and reduce the availability of insurance, and generally limit the ability of affected borrowers to repay debt,” he wrote.

“Climate-driven environmental shifts, such as rising sea-levels, will compound these impacts.” Financial institutions could then suffer massive losses, triggering further loss exposure for investors at all levels of the financial system, Gelzinis warned.

However, at the state level, some insurance commissioners have been fully engrossed in climate change issues for multiple years now.

Washington State Insurance Commissioner Mike Kreidler has held summits on the topic and devoted his department’s resources to it. The National Association of Insurance Commissioners will be hosting a panel next week as part of its annual international issues forum on climate risk and resilience. The May 26 discussion will be moderated by Andrew Mais, NAIC secretary-treasurer and Connecticut’s commissioner of insurance, who has been actively engaged on the topic. California’s insurance department has a climate change working group under Commissioner Ricardo Lara.

The NAIC has an executive level climate and resiliency task force and adopted an insurer climate risk disclosure data survey in 2010. However, in response to its latest survey released by the NAIC and its Center for Insurance Policy and Research late last November, researchers found that “few insurers” had reported changing their investment strategy in response to considerations of the impact of climate change on its investment portfolio. The NAIC has a nonvoting member on the FSOC, currently Eric Cioppa, Maine’s insurance superintendent and a recent NAIC president.

The EO also requires the national climate advisor and the director of the National Economic Council to develop, a comprehensive climate-risk strategy to zero in on any and all climate-related financial risk to government programs, assets, and liabilities. This work should be be done in 120 days, it says, and will also identify the public and private financing needed to reach economy wide net-zero emissions by 2050. The work must also advance economic opportunity for workers, especially in disadvantaged communities and communities of color.

‘Over and done with:’ China Oceanwide withdraws Genworth application from Virginia SCC

April 23, 2021 — China Oceanwide Holdings Group Co. Ltd. asked for its application to acquire Genworth Financial Inc. to be withdrawn in a letter to Virginia regulators, formally ending an almost five year attempt to purchase the long-term care insurer.

The acquisition was publicly proposed in October 2016, although Genworth had been courting would-be buyers privately in the months before it made its choice to go with the Beijing-based conglomerate, offering $5.43 per share or $2.7 billion.

In the end, after numerous state federal regulatory approvals and re-approvals were won in the U.S., and even after Genworth sold its majority stake in its mortgage insurance subsidiary in Canada to remove any hurdles there, China Oceanwide could not raise the funds needed to finance the deal, and Genworth elected to terminate the merger April 6.

China Oceanwide’s letter to the Virginia State Corporation Commission through its lawyers was short and curt. It noted that the application had been approved by the SCC’s Bureau of Insurance on Jan. 11, 2019, and re-approved on March 31, 2020.

“We are submitting this letter to inform the Bureau that pursuant to the notice of termination, dated April 6, 2021, provided on behalf of Genworth to China Oceanwide, Genworth has exercised its right to terminate the Merger Agreement and abandon the Proposed Acquisition pursuant to Section 8.2(a) of the Merger Agreement, with such termination effective as of April 6, 2021. In light of the foregoing, China Oceanwide respectfully requests that the Application be withdrawn from the Commission and the Bureau,” the filing on Bland & Sorkin letterhead said.

Thus ends the saga, although Genworth is planning on moving forward with an IPO of its mortgage insurance subsidiary, which it announced earlier this week.

 Although no state regulators have commented despite inquiries and Genworth is in a quiet period before earnings and generally cannot comment, one equity analyst wrote after Genworth terminated the merger that it could face solvency issues in the future without the cash infusion of about $525 million to be given to Genworth’s. life insurance businesses. 

“Our understanding is that GNW has no intention of supporting GLIC with any future capital contributions, which may mean GLIC will be taken over by regulators over the next few years, if LTC pressure continues,” warned Evercore ISI analyst Thomas Gallagher in a research note April 7. The note regarded Ameriprise Financial, Inc., which had reinsured half of its LTC block, about $2.7 billion, Genworth’s subsidiary, Genworth Life Insurance Co. or GLIC.

The analyst was gaming out what would happen in a dire solvency event to Ameriprise’s reinsurance contract with Genworth, as it has reinsured half of its LTC block to GLIC, which it noted had year-end RBC ratio of 229% “and so it is probably okay for now, but worth watching if the RBC dips below 200%, a level at which regulatory oversight and surveillance would increase,” the analyst wrote.

The life businesses must rely on their consolidated statutory capital of about $2.3 billion as of the end of the third quarter 2020, stated Tom McInerney, Genworth’s CEO, on a conference call in February to discuss year-end earnings. He touted though, the fact the company secured, on a cumulative net present value basis about $14.5 billion of approved LTC premium rate increases since 2012. “As we’ve discussed in the past, we have no plans to infuse additional capital into, or extract capital from, our U.S. Life Insurance businesses,” McInerney stated.

Gallagher wrote that Ameriprise’s total potential total economic exposure to LTC is $5.4 billion.

To market, to market: Genworth Financial files intent to IPO mortgage insurance sub after scuttling Oceanwide deal

April 19, 2021 — Genworth Financial is planning on going to market with its mortgage insurance subsidiary, triggering its Plan B in the wake of its collapsed deal with China Oceanwide Holdings Group Co., Ltd. 

In a filing for a proposed offering April 19 with the Securities and Exchange Commission, Genworth Mortgage Holdings Inc. stated that recent data reveals continued optimism in the resilience of the U.S. housing market while more available and attractive risk transfer alternatives have improved the mortgage insurance industry’s risk profile.

Genworth hasn’t yet determined the number of shares to be offered nor the price range for the proposed offering.

In deciding the time was ripe for a future IPO, GMHI also touted what it sees as the strength, durability and diversity of its customer relationships among its 1,800 active customers across the mortgage origination market. These include national banks and other mortgage lenders, such as local and community bankers and credit unions.

An index from the National Association of Realtors measuring homebuyer’s mortgage payment ability using median levels of income and pricing increased to 170 in December 2020, up from 158 in 2017, according to GMHI’s new filing. 

Total capitalization of the mortgage company is listed as about $4.62 billion as of Dec. 31, 2020.

Genworth Financial mentioned it was weighing the possible spin off its mortgage insurance business well over a year ago, before the Covid-19 pandemic struck the globally, while it was still struggling to complete its acquisition by China Oceanwide, mainly through gaining all remaining jurisdictional regulatory approvals. This was before funding the proposed acquisition, first announced in October 2016, became the last, final and probably fatal issue for deal. Genworth Financial called off the merger two weeks ago.

Genworth Financial, the parent, expects to indirectly own at least 80% of the mortgage insurer’s common stock following the deal’s completion. A tax allocation agreement between the parties depends on the parent company’s continuing ownership of at least that much. 

“Our parent’s indebtedness and potential liquidity constraints may negatively affect us,” GMHI warned in the filing. 

GMHI operates under GSE (government sponsored enterprises like Fannie Mae and Freddie Mac) restrictions, which mean that’s liquidity must not fall below 13.5% of its outstanding debt. 

However, if Genworth Financial no longer owns directly or indirectly 50% or more of our common stock, Fannie Mae has agreed to reconsider the GSE restrictions.

Parent company Genworth sold all of its common shares in Genworth Mortgage Insurance Australia Ltd. in March to help fund its ongoing settlement with AXA, leaving a balance owed of $338 million, which is subject to increase, the mortgage insurance company stated in the filing. 

Genworth told the mortgage subsidiary that under the AXA settlement, the holding company plans to repay or reduce upcoming debt maturities with money made from the offering of its 2025 senior notes. 

The significant financial settlement with AXA was announced in July 2020 and involves losses from allegations of misspelling payment protection insurance underwritten by two companies that AXA acquired from Genworth in 2015. The liability case was argued under the High Court in the U.K. Under the terms of the settlement, Genworth had to pay AXA $125 million last July, in addition to a former interim cash payment the year before and deferred cash payments totaling approximately about (converted from pounds sterling) $442 million in two installments in 2022 and to pay a significant portion of all future mis-selling losses incurred by AXA, which the company will invoice each quarter. 

J.P. Morgan and Goldman Sachs & Co. LLC will be the joint book-running managers for the proposed offering.

The company has been buffing the image of its mortgage insurance subsidiary for awhile. North Carolina-based Genworth Mortgage Insurance rolled out a colorful and detailed 29-page investor presentation Aug. 17, 2020, touting the subsidiary company’s strengths, such as leadership, capitalization, risk management and operating performance over the years.

The presentation, led by Dan Sheehan, Genworth CFO and CIO, Genworth Mortgage Insurance CEO Rohit Gupta and CFO Dean Mitchell, served as a primer in the structure of the company as well as a lesson in how Genworth Mortgage is very much a separate entity from that of Genworth, the long-term care insurer, which faces a set of very different challenges.

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