NAIC grappling with LTC insurance while owning the enormity of the problem, its president says

July 30, 2019 — Long term care insurance issues top a list of regulatory concerns for current  National Association of Insurance Commissioners President Eric Cioppa, according to the organization’s first podcast series recording.
“If a company goes into the guaranty fund, we’ve failed. There’s just no way around it,” Cioppa said bluntly. He said LTC needs to be fixed, and added that failure is not an option.
He referred listeners to the ongoing  $3 billion minimum liquidation of the now  insolvent LTC company, Penn Treaty, which a few years ago had fought liquidation in the Pennsylvania Commonwealth court system back when NAIC CEO Mike Consedine was state insurance commissioner. The Commonwealth Court of Pennsylvania issued orders placing Penn Treaty and its sister company American Network in liquidation in March 2017 after state regulatory recommendations, this time under then-Pennsylvania insurance commissioner Teresa Miller.
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“The industry may have mispriced [the premiums], but we approved the rates and we just have to look in the mirror if we don’t fix this,” Cioppa said in the segment.
The  #TheRegulatorsPodcast —Insurance Insights from Inside the NAIC, featured Maine’s superintendent of insurance sharing his views on what keeps him up at night in his capacity as a leading regulator. Consedine served as Cioppa’s interviewer.
In addition to LTC insurance, Cioppa also identified cybersecurity, annuity suitability, the international capital standard development and macroprudential financial risk monitoring  as key oversight issues for state regulators. However, this first podcast conversation chiefly  focused on LTC matters.
LTC is “especially problematic,” Cioppa told Consedine on the podcast. The policies were underpriced when they were developed 20, 30 or 40 years ago and it took a long time for the industry to realize this, according to Cioppa.  He noted that sometimes consumers would rather pay the sometimes triple-digit percent rate increases on their broad policies rather than see their benefits be reduced by  half or even more in their state’s guaranty fund after an insolvency. The value of these older policies are significant, Cioppa noted.
Policy rate increase standards are part of a solution the state insurance departments are now working on, a project which involves developing a commonality across the states for establishing and approving  rates, but this harmonization on rates is not the only solution, Cioppa cautioned.
“We have to balance solvency with consumer protection,” Cioppa said. We need to protect the consumers and make sure the companies live up to their promises, he stressed. There exists a “vulnerable population” with affordability issues with their LTC policies,  Cioppa warned.
Some customers are being priced out of their policies while the LTC insurance companies run into financial problems, Cioppa lamented. The NAIC president noted that some companies might want to “wall off” their nonperforming LTC business, but dismissed this as not a very good option.
Cioppa championed the work a new NAIC rate task force has undertaken in delving into achieving a measure of rate approval commonality across states. The state regulators’ work also includes exploring and defining the magnitude of the LTC problem, which likely means measuring  industry reserve shortfalls.
Separately, the Federal Interagency Task Force on Long Term Care Insurance met last week at the  U.S. Treasury Department, meeting with  industry actuaries, according to social media posts. According to one participant, discussions topics included tax incentives for the purchase of LTC insurance.
The NAIC expects to discuss a myriad of interrelated LTC matters at its upcoming summer national meeting in New York the first weekend in August.

The executive-level LTC Insurance Task Force is slated to  weigh benefit reduction options as part of  companies’ premium rate increase  offerings as well as hear from consumer/industry representatives on LTC issues, according to the agenda.

Genworth seeks sale of its Canadian mortgage insurer to clear path for Oceanwide transaction

UPDATE July 2 with comments from Canadian regulators 

UPDATE July 1 from Virginia SCC, Genworth’s domiciliary regulator

Genworth Financial is pursuing a potential sale of its 57% stake in its Canadian mortgage insurance business to pave the way for completion of its long-pending merger with China Oceanwide Holdings Group Co., Ltd., it said July 1, after failing to meet the latest merger deadline a day earlier.

Genworth characterized the Canadian regulators, who are the remaining supervisors whose okay is required for a deal approval as a clear impediment. The companies are  willing to sacrifice a top performer — and pocket the proceeds to possibly pay down debt — to close the  deal with its Chinese suitor.

China Oceanwide has agreed to allow Genworth to explore strategic alternatives  for Genworth MI Canada Inc. because Canadian regulators have not given any guidance or information on a time frame for a merger approval yet, according to Genworth. The pricing terms of the deal have not changed.

China Oceanwide and Genworth also agreed to push back the merger deadline to Nov. 30, the 11th such waiver since the first deadline passed more than two years ago. The timeframe for the deal has the potential to extend past that date, the parties acknowledged, to complete any sale of Genworth MI Canada.

The deal for the Chinese conglomerate to acquire the U.S.’s largest long-term care insurer, was first announced in late October 2016.

The  “lack of transparent feedback or guidance from Canadian regulators about their review left us no choice but to look at strategic alternatives for MI Canada that would eliminate the need for Canadian regulatory approval of the Oceanwide transaction,”  Tom McInerney, president and CEO of Genworth, stated in a release July 1.

Previous statements from Genworth indicate that the Canadian government has expressed concerned around customer data privacy issues in the sale of the mortgage insurer to the Chinese company.  The Richmond, Va.-based company discussed these issues in its first quarter earnings release and call about two months ago while also lamenting a lack of feedback from Canadian regulators.

Under the terms of the new agreement, if Genworth finds a buyer for MI Canada, China Oceanwide would then approve or reject the transaction. If Oceanwide thumbs down the MI suitor or its terms, both Genworth and Oceanwide both have the right to end their own deal.

One benefit of bringing the well-performing MI Canada, largest private residential mortgage insurer in Canada, to market would be using the money from the sale to pay down  future debt maturities, according to McInerney.

As at March 31, 2019,  Genworth MI Canda had $6.9 billion total assets and $4.1 billion total shareholders’ equity. It reported first quarter net operating income of $119 million.

He said that Genworth is in discussions with its other regulators about the potential  MI Canada sale and its effect on the Oceanwide transaction, but didn’t elaborate on what that would mean in terms of already-gained approvals from various U.S. state regulators. The  Committee on Foreign Investment  in the United States (CFIUS) approved the deal with conditions that include nation security measures more than a year ago.

The Oceanwide transaction still needs the okay from China for currency conversion.   

Oceanwide remains committed to the transaction at the original purchase price of $5.43 per share as well as the $1.5 billion contribution to Genworth, when the transaction closes, according to China Oceanwide’s chairman, LU Zhiqiang.

Genworth has invested in months of lobbying utilizing well-connected and top tier lobbyists in Canada such as Andrew Steele and Leslie Noble  in attempts to get the deal cleared, but in its statement Monday  it acknowledged the needle had barely moved.

The transaction with Oceanwide could  potentially trigger a new review of the merger in the states.

Genworth’s domiciliary regulator, the Virginia State Corporation Commission said Monday that “it is possible that the potential disposition announced today could result in the company needing to amend or supplement its Virginia application,” because it represents a material change to the merger plan the SCC’s  Bureau of Insurance approved on Jan. 11, 2019.

The  regulator’s approval letter stated that it was conditioned upon the proposed transaction “being implemented precisely as described in the Amended Form A,” according to Ken Schrad, director of the Division of Information Resources for the SCC.

“There is a rigorous approval process for changes in ownership of federal financial institutions,” a Department of Finance Canada spokesperson said via email July 2. He said that the assessment of each transaction application  depends  on the specific facts and circumstances and added that “the examination of this (Oceanwide) transaction is still ongoing.”

The Superintendent of Financial Institutions makes a recommendation to the Minister of Finance, which makes the final decision.

Any application remains under review until the Minister of Finance either approves or denies, or the applicant withdraws the application, according to the Office of the Superintendent of Financial Institutions.  OSFI  has been in contact with the company in order to gather information throughout the process, its spokesman said.

There are no indications the Genworth-Oceanwide application has been withdrawn.