Genworth Financial Inc. is doubling down on its long-term care business unit amid a challenging market environment that's seen LTC sales dip markedly over the past several years and insurers suffer due to low interest rates.
Genworth on Thursday announced a restructuring plan for 2016 that would “separate and isolate” its LTC business, part of a strategy to address issues in its legacy block of business and direct efforts exclusively on markets with the most potential for profitable growth.
As part of that strategy, Genworth is suspending sales in traditional life insurance and fixed annuity products in the first quarter of 2016 to narrow the firm's commercial focus.
“I think overall the move [to focus on long-term care] makes sense,” according to Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI).
JOHN HANCOCK, UNUM
Genworth is the largest LTC insurer, holding approximately 18% of the market when measured by covered lives, or the number of insured. The firm has approximately 1.25 million covered lives, and notched around $2.5 billion in earned premiums in 2014, according to AALTCI.
By comparison, the next closest insurers, John Hancock Life Insurance Co. and Unum Life Insurance Co. of America, have just under 1 million covered lives and $1.5 billion in premiums, and 865,000 lives and $600 million in premiums, respectively.
Meanwhile, Genworth doesn't have nearly as strong a hold in the fixed annuity or life insurance markets, according to industry experts. For example, Genworth had a 1.07% share of the $23.1 billion fixed deferred annuity market as of the third quarter of 2015, according to data from Wink Inc. Genworth's life insurance market-share data wasn't immediately available. Genworth had life insurance sales of $54 million, according to the company, and $1.124 billion in annuity sales in 2015.
The firm has 2.8 million existing life insurance and annuity policyholders. They won't be affected by the annuity or life insurance sales suspension, the company said.
Effective March 7, Genworth won't be accepting new applications for the following life insurance and annuity products: Asset Builder Index Universal Life II; Foundation Builder Index Universal Life; Colony Term; Total Living Coverage and Annuity Secure Living series.
Total Living Coverage is the firm's linked-benefit product, a type of policy combining life insurance and long-term-care benefits. Those types of products have grown increasingly popular as sales in traditional LTC have slumped.
From 2010 to 2014 there was a 60% drop in new traditional LTC insurance policies sold, to 120,000 from 300,000, according to AALTCI. Over the same time period, there was 525% growth in combination policies, to 100,000 from 16,000, according to Limra.
The increasing longevity of Americans and persistently low interest rates have made it challenging for traditional-LTC insurers over the past several years. As a result, some insurers have had to raise premiums on in-force LTC policies, which has contributing to a negative perception of the traditional LTC market among advisers and consumers.
“Every year Americans are living longer, but they're becoming disabled and needing more long-term care in retirement, because the things that used to kill us just disable us,” according to Gregory Olsen, partner at Lenox Advisors Inc.
Genworth is currently working to win regulators' approval for a premium hike. Companies that increase their premiums don't do so for newer policies, but rather for older policies that offered more generous benefits, Mr. Slome said.
Aside from the inherent challenges to the traditional LTC market, Genworth has another hurdle in its distribution. The firm used to have a “very strong captive, career agency [distribution] force,” similar to New York Life and Northwestern Mutual, that could exclusively sell the firm's LTC products, according to Mr. Slome. Now, they don't have the luxury of that sort of “controlled product distribution.”
“In that market you have to have the best product, pricing, name and ratings in order for an independent broker to recommend you,” Mr. Slome said.
Further, Genworth was part of the product underpricing that went on more than a decade ago among insurers, when LTCI was in a growth phase and firms were competing for new business partly on price, Mr. Olsen said. That dynamic makes it more challenging to pay out claims on those contracts in the future, he added.
However, as is the case with all insurers, the prospect of rising interest rates could deliver welcome relief for a beleaguered LTC insurers such as Genworth, as it could bolster the bond investments underpinning their portfolios.
“As interest rates rise, that will be good news for companies that have large blocks of insurance products,” Mr. Slome said.