3Q LTC result glimpse shows effects of heavier claims & lower interest rates, but states granting rate hikes

Third quarter 2019 results for U.S. long-term care insurance reveal that new, higher claims activity combined with lower interest rates are weighing down the carriers’ balance sheets for this book of business.

However, there is some relief for these beleaguered blocks: policy rate increases of variable amounts granted by state regulators are reducing some of the adverse developments in claims and interest rates. 

Genworth Financial’s risk-based capital ratio for its life insurance companies pulled itself out of a sub-200% slump range in the third quarter despite a need to boost capital to support lower interest rates and new LTC claims growth.

Genworth is locked in a three-year-long merger agreement with China Oceanwide Holdings Group Co., Ltd., which stated that it remains committed to the transaction with Genworth, as well as the $1.5 billion contribution to Genworth over time following the consummation of the transaction, proceeds which would help the legacy LTC unit as it tries to start a new kind of LTC business.

Performance was hampered by a growth in new claims, the Richmond-Based company said in its Oct. 29 earnings release. Genworth’s life insurance companies’ consolidated RBC rose from 191% in the second quarter to 200% by the end of September, buoyed by in-force statutory earnings, it said. The RBC had been slipping before the slight rise. In the year-ago 2018 quarter, the RBC stood at 268%. 

Genworth’s LTC reported adjusted operating income was $21 million, compared with adjusted operating income of $37 million in the second quarter and an adjusted operating loss of $24 million in the year-ago quarter, it stated. These numbers reflect higher earnings from in-force rate actions, Genworth said. 

Meanwhile, MetLife is giving its LTC a loss recognition testing margin of $1.8 billion, an amount that, while down from last year, is a product of reduced future interest rates, according to an Oct. 31 analyst research noted from Evercore ISI

Unum posted an after-tax reserve increase of $593.1 million in the LTC product line of its closed block business in its third-quarter earnings. Back in the third quarter of 2018, its reserve increase was a bit larger —  $750.8 million. Unum acknowledged it had a favorable claim recovery experience in the group long-term disability product line for the quarter. 

Like Genworth, Unum reported that some declines in LTC performance had been offset by premium rate increases for the book of business. LTC insurers like Genworth and Unum have been actively and consistently seeking rate increases on their policies across the country. 

Unum reported heftier claims activity, as well. It stated that its interest adjusted loss ratio for the LTC line of business was 89.8 % in the third quarter of 2019, a bit higher than in the year-ago quarter, a result “primarily driven by higher claims incidence.”

Overall, Unum said that premium income for the closed block fell 3.9% in the third quarter from the year-ago third quarter mostly from policy terminations and maturities but that this had been  offset by  the police increases it was getting on certain in-force LTC business.

In its third quarter, General Electric Co. took a $1 billion pre-tax charge on its run-off insurance block, which holds its now closely-watched LTC insurance portfolio. GE attributed this charge chiefly to lower interest rates cutting into margins. Offsetting the negative economics of the business were projected premium rate increases of $300 million from state insurance regulators, according to the third quarter call transcript with investors and analysts.

Otherwise, GE’s LTC hit would have been $1.3 billion.

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