Genworth sees SHIP rehab as possible national model for LTC rate increase and benefit reduction plan — with an actuarial caveat

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May 8, 2020 — Genworth Financial is looking to the recent rehabilitation plan of insolvent long-term care insurer Senior Health Insurance of Pennsylvania for potential wider adoption for its in force business as well as others.

The chief reason for the LTC insurer’s support for a structure similar to SHIP’s plan gaining approval nationwide is that “it significantly reduces premium differences among policyholders across the various states,” a Genworth spokeswoman stated in an email.

The Richmond, Va.-based insurer had noted in an analyst call following the release of its first quarter earnings earlier this week that “SHIP’s plan includes proposed changes to either increase policyholder premiums or reduce benefits to LTC policies that have a premium below a specified rate, which are likely to be policies in those states that are behind an actuarially justified rate increases.”

Although Genworth has booked about $12.7 billion in LTC premium rate increases across the states, it isn’t enough, and so the company is continuing to emphasis the need for a national approach.

The company still has over $7 billion future premium increases and benefit reductions to go to meet the needs of future claims for LTC policyholders, the company said on the May 6 analyst call.

“Given where we are and what we have left, we would say we’re 60% or so all the way through shoring up those books and bringing them closer to a breakeven level with the premium increases,” said Genworth CEO Tom McInerney said on the analyst call.

The CEO, still striving to complete a merger with China Oceanwide Holdings Group Co., Ltd, spoke of the focus on beefing up LTC reserves through more robust state efforts to accept premium hikes partly because of the Penn Treaty and SHIP insolvencies in Pennsylvania. Penn Treaty companies were formerly known as Penn Treaty Network American Insurance Co. and American Network Insurance Co. and are undergoing liquidation.

This multi-year effort is one of the key initiatives of an executive-level task force of the National Association of Insurance Commissioners. The goal is to right-size rate increases to greatly reduce cross-subsidization of increases between states, an effort Genworth has long supported. The idea would be push the states that haven’t granted increases to “step up their approvals” according to Genworth.

To this end, “we will encourage the NAIC task force to consider whether actions similar to those proposed in the SHIP plan can be applied more generally to states that are behind and improving rate actions,” Genworth’s McInerney said on the analyst call.

Rehabilitators for SHIP filed a three-phase rehabilitation plan  on April 22nd to address an insolvent company with 45,000 policies in force and a funding gap for claims of between $500 million and $1 billion.

Genworth is looking at the SHIP plan because it is designed to calculate a “minimum premium rate level applicable to all policyholders to mitigate the way key risk factors, including interest rates, lapses, morbidity and mortality, developed versus original pricing assumptions,” the spokeswoman said. These original assumptions have led to insolvencies and shortfalls throughout the LTC industry.

Of course, the rate increases are costly for those holding the policies, often retirees who had expected their premiums over the years would be good enough to cover their well-being and care as they age. The LTC shortfalls brought about by actuarial calculations that didn’t match future market or health realities also means a multitude if seniors are facing reduced benefits if they cannot afford the rate hikes companies say are needed to keep them afloat. 

Genworth, though, does have concerns with the underlying actuarial model the rehabilitation plan is using. It is unclear what they are at this time. 

 However, a person familiar with the plan said that SHIP’s actuarial model as well as the premium rate setting methodology are widely accepted and in use in the industry so it is unclear what the concerns are that Genworth has.

McInerney said on the call that state regulators are now more open to providing significant premium increases and benefit reductions for all of the LTC industry.

They will have to be: the Maine Bureau of Insurance recently found Unum Group was deficient to the tune of $2.1 billion in statutory reserves for LTC based on a review in a review through Unum’s 2018 books.

Unum has seven years to fill this hole, but the reported deficiency has caused some analysts to be concerned it might need money to restore its books, because in 2018, the 10 year Treasury rate of 2.40%.

“With rates now 150-200 bps lower, there could be a substantially higher reserve deficiency” said Evercore ISI analysts in a research note following Unum’s first quarter earnings release May 4. However, the analysts tempered this point by acknowledging that Unum management had indicated Maine regulators has used more current, lower rates. 

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Fatal COVID-19 infections & questions over a possible increase in mortality during quarantine arise in Q1 life insurance earnings

Anecdotal evidence suggesting that the outbreak of the virus that causes COVID-19 infections in people has increased mortality from other causes is now emerging.

But increased U.S. death rates could possibly be arising not only from the initial onslaught of the virus itself but for those who have delayed or suspended medical care for other ailments due to sweeping stay-at-home orders and fear of contracting COVID-19 while seeking care, according to some analysis of a life insurer reporting first quarter earnings May 5.

The Reinsurance Group of America reported excess U.S. claims of $54 million, with mortality concentrated in ages 70 and above, a population in which COVID-19 fatality rates are higher. As a result of the higher mortality claims in the U.S. market, the global insurer’s first quarter operating earnings came in below analysts’ expectations. The variable investment income played a part as well, the Chesterfield, Mo.-based insurer said.

RGA cautioned against drawing any decisive conclusions based of the ultimate effects of COVID-19 on its claims experience from these first quarter results. “A range of stress scenarios have been considered and we believe them to be manageable,” the company stated.

Delays in reporting and incomplete pictures as to the cause of death in policyholders make it hard for the insurer to say how much Covid-19 is driving the higher mortality and claims experience. 

However, one equity analyst noted that RGA’s citation of anecdotal evidence of elevated “all-cause population mortality” happening alongside the pandemic’s outbreak could mean that more people are dying during quarantine from a lack of medical care than they would otherwise have.

The indication from the flagging of RGA’s U.S. mortality experience in its slide presentation is that “quarantine measures have actually led to increased mortality as access to care has diminished,” wrote Thomas Gallagher, CFA, and his analyst team from Evercore ISI

This could lend credence to a scenario that some healthcare professionals have feared: those who would ordinarily seek medical care aren’t going to take care of new or existing problems, leading to higher mortality claims in the industry or among those insurers with a higher percentage of older policyholders. 

According to a poll released in late April by the American College of Emergency Physicians and Morning Consult, some people are actively avoiding emergency room and other needed medical care due to COVID-19 concerns.

According to the results of the survey, four in five adults report they are concerned about contracting COVID-19 from another patient or visitor if they need to go to the emergency room while 29% of respondents said they have actively delayed or even avoided seeking medical care due to worries about contracting the virus. When it comes to potentially making a trip to the local emergency department, 73% said they were concerned about “overstressing the health care system,” the poll found.

Genworth Financial reported higher mortality in universal and term life insurance products during its first quarter earnings. Although the overall mortality in term and universal life was “significantly unfavorable versus the prior quarter and prior year,” Genworth officials do not have evidence these deaths are related to COVID, leaving other causes on the table, according to comments from officials during the first quarter conference call to discuss earnings May 6.

Only three claims have been identified as COVID-19-related in the first quarter, totaling just under $300,000 in benefit payments, according to Genworth CFO Kelly Groh. She said the company will continue to monitor its mortality experience as well as any impacts from COVID-19.

In contrast, Toronto-based Sun Life Financial Inc. reported May 5th that its mortality and morbidity claims experience from COVID-19 has been small, totaling under 5% of its monthly average for mortality and disability claims paid. In addition, the claims that have come in have been countered by lower claims experience elsewhere, the company stated in first quarter earnings report May 5. 

Like other insurers, Sun Life said has been active in supporting those fighting the virus — it donated 600,000 surgical masks to hospitals, over $2 million to support affected communities and in various Asian countries, where it has deep ties, provided food and hand sanitizer as well “digital life insurance coverage” donations to doctors, nurses, and other medical support staff. 

RGA’s own foundation, has committed $1.5 million in grants to support COVID-19 relief and response efforts worldwide, the company stated.