Higher rates can blunt long-term-care errors, Genworth CEO says

The largest seller of long-term care coverage is counting on periodic rate increases of 2% to 4%

Dec 4, 2013 @ 1:12 pm

Genworth Financial Inc., now the largest seller of long-term-care coverage, is counting on periodic rate increases of 2% to 4% to maintain profit targets.

“I don't think it's prudent to be in this business unless you can, over time, re-rate policies to reflect the difference between how actual reality played out versus your original assumptions,” chief executive Tom McInerney said Wednesday. “You have to ultimately have a return in the mid-teens range. If it's less than that, on a risk-adjusted basis, investors shouldn't invest in the business.”

Mr. McInerney has been limiting benefits on new coverage and seeking regulators' permission to lift rates by more than 50% on some policies sold in prior decades. That contrasts with the approach of larger rivals MetLife Inc. and Prudential Financial Inc., which halted long-term-care sales as costs climbed for the coverage, which helps pay for home health aides or residence in nursing homes.

It's difficult to predict fluctuations in interest rates, the proportion of customers who will hold on to their policies over time, and the number of policyholders who eventually use the benefits, McInerney said. There are typically about 20 years between when someone purchases a policy and when it's used.

“We don't have to get everything correct today on morbidity or mortality or lapse or interest rate assumptions,” Mr. McInerney said on a conference call that Genworth held Wednesday to discusses the business. “We can correct for that by seeking these more frequent, proactive rate increases.”

SHARE RALLY

That's different than life insurance, where premiums on most policies stay the same over time, and with how long-term-care insurance typically has been managed, Mr. McInerney said. It's more similar to health coverage, where insurers can adjust premiums each year.

Analysts had been pushing for information about how Genworth will cope with low interest rates and the possibility of higher- than-expected claims costs. Mr. McInerney said that reserves are adequate for long-term-care coverage and provided analysts with details on how the levels change based on interest rates and claim assumptions.

Shares of Genworth, which also offers life and mortgage insurance, have more than doubled this year in New York trading as rising home prices helped it post profits for the first time since 2007 at the unit backing U.S. home loans.

'HAPPY MEDIUM'

Insurers that still offer long-term-care coverage have tightened policy terms and increased prices, said Laura Bazer, an analyst at Moody's Investors Service. Premiums have increased about 30% over the past five years, according to Jesse Slome, who runs the American Association for Long-Term Care Insurance.

“It's hard to find a happy medium in a policy that meets the needs of people and is affordable,” Mr. Bazer said in an interview before Wednesday's conference call. “The benefit has to be worth the cost.”

Manulife Financial Corp.'s John Hancock unit offers individual coverage in the U.S., after suspending sales of group policies in 2010. Mutual of Omaha Insurance Co., Northwestern Mutual Life Insurance Co. and Aegon NV's Transamerica unit were among the largest sellers of individual coverage in the third quarter, along with Genworth, according to data compiled by industry group Limra.

RATE INCREASES

Genworth has requested rate increases on some groups of policies sold from 1974 to 2007, which are projected to add about $280 million to annual premium. The company said today it's achieved about $155 million of that figure.

The insurer is also requesting premium increases of 6% to 13% on some contracts sold from 2003 through last year. Some of the rate increases requested on the older policies were greater than 50%, Genworth said last year.

“It is impossible to be in this business long-term, if you have to set all of your assumptions based on the date the policy is issued and you can never change or re-rate the policies,” Mr. McInerney said. “I wouldn't be comfortable, as the CEO of Genworth, going forward in this business if, at the end, the regulators come out in a place where they won't allow us to get these smaller, more proactive rate increases.”

(Bloomberg News)

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Mar 14

Conference

WOMEN to WATCH

InvestmentNews is honoring female financial advisers and industry executives who are distinguished leaders at their firms. These women have advanced the business of providing advice through their passion, creativity, inclusive approach and... Learn more

Featured video

INTV

Why advisers are pessimistic about the economy

Deputy editor Bob Hordt and senior research analyst Matt Sirinides discuss a recent InvestmentNews survey of advisers, most of whom see a recession ahead before the next presidential election.

Latest news & opinion

6 biggest RIA acquisitions of 2018

As M&A involving registered investment advisers hit another record last year, these six deals topped the list

Anatomy of an annuity buyout offer

Readers are invited to comment on whether the columnist should keep or ditch her Ohio National VA contract

Factions emerge in OneFPA overhaul

Critics fear the FPA is trying to take money and power from local chapters, which officials and proponents call overblown.

RIA M&A sets another record in 2018

Last year's 181 deals were twice the number recorded five years ago, and the average asset size of the acquisitions was $1.3 billion — 31% larger than in 2017.

6 tech companies heading for IPOs this year

These Silicon Valley technology companies could make an IPO splash in 2019.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print