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

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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