Surge in LTC rates — part of insurers’ multi-year premium increase plans — coming soon

UPDATED Oct. 28th with Allianz filings from Georgia posted Oct. 27

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.

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.

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.

Above: Genworth multi-state rate increase request filing memo

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 is filing in multiple states for sizable increases, including in Georgia on Oct. 27 for 103% hike effective June 2022. In a filing, it said even with the increase granted, it would still suffer a whopping 168.2% loss ratio–but its loss ratio would be closer to 200% without the increase. The rate increase requests for the products, which include Future Select, Allianz LTX and Secure Senior sold between 1994 and 2002 would have rate increases ranging from 43% to 83% to 113% depending on the length of the benefit period, according to a form filed this month. The highest increase would go to the policies with lifetime benefits.

Demonstrates Allianz Life's rate filing request in the state go Georgia  for certain LTC insurance policies
Georgia filing submitted in October by Allianz Life for rate increases in certain LTC policies

“These forms are in need of a premium rate increase due to past and projected future experience that continues to be more adverse than previously expected and originally priced for,” Allianz wrote in its memo.

In Maine, Allianz Life has asked 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.

United of Omaha Life Insurance Co.'s
ACTUARIAL JUSTIFICATION OF PREMIUM RATES, Policy Series LTC06UI for Ohio, October 2021
From United of Omaha Life Insurance Co.’s actuarial justification of premium rates, Policy Series LTC06UI in Ohio, October

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.” 

Options for varying levels and years of rate increases and reduced benefits are also the centerpiece of the now-approved amended rehabilitation plan of Senior Health Insurance Company of Pennsylvania, or SHIP. The insolvent insurer, beleaguered by years of insufficient premiums, would have otherwise faced liquidation of assets.

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

Update: Oct. 28, 2021 with Michael McRaith joining Brookfield

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. 

And on Oct. 28, Michael McRaith joined Brookfield as vice chair of its insurance solutions business, a newly created role, where he will focus on providing capital and investment solutions for insurance balance sheets and policyholders, with a likely eye now on fixed annuity block risk transfers. The former first director of the Federal Insurance Office at the U.S. Treasury Department worked on the Allstate deal when he was at Blackstone.

Expect more additions to well-known brands.

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