Genworth raises long-term-care insurance costs an average 58%

The cost increases, approved by regulators in the second quarter, affect roughly $160 million of in-force premiums.

Genworth Financial Inc. received approval from state regulators this year to raise costs an average 58% on some long-term-care insurance policies, affecting tens of millions of dollars’ worth of annual insurance premiums the company receives from consumers.

The approvals, which other insurers are also pursuing to offset adverse trends in the long-term-care industry, come as companies such as Prudential Financial Inc., Unum Group and CNO Financial Group announced financial setbacks related to their long-term-care businesses.

Thomas McInerney, president and CEO of Genworth, which is the largest LTC insurer by number of policyholders covered, said the company received approvals for 22 state filings in the second quarter.

The approvals, which sought rate increases as part of Genworth’s “long-term-care insurance rate action plan,” impact $160 million of in-force premiums, Mr. McInerney said during the company’s quarterly earnings presentation. Affected consumers will see an average weighted cost increase of 58%.

Such price increases have become a common fate for LTC policyholders and their financial advisers. Massachusetts Mutual Life Insurance Co., for example, this year requested premium hikes of about 77%, affecting roughly 54,000 — or three-quarters — of its LTC policyholders.

Genworth had already raised costs on $72 million of in-force premiums in the first quarter this year, according to company figures. That follows an average 28% cost increase in full-year 2017, which affected $714 million in premiums, and a 28% hike in 2016 that encompassed $719 million.

CFO Kelly Groh told investors the rates are “actuarially justified” and will “continue to be a focus of ours to help mitigate margin pressure.”

Long-term-care insurers have had to grapple with a number of economic challenges, including increasing longevity, a spike in health care costs and persistently low interest rates. Many companies mispriced policies that were underwritten years ago and have responded partly by raising costs for policyholders. That’s resulted in a degree of reputational damage as some consumers have had to ditch policies that became too expensive.

Sales of traditional LTC policies have declined sharply — last year, fewer than 70,000 policies were sold, a tenth of the total two decades ago.

Several of the largest companies, excepting Genworth, have stopped writing new business. John Hancock Life Insurance Co. exited the business last year. A court approved the liquidation of Penn Treaty America Insurance Co. and a subsidiary, which covered around 74,000 policyholders, in 2017.

“I think post the Penn Treaty insolvency in 2016, I think regulators have taken the viewpoint that they do have to provide these actuarially justified increases in order for the insurance companies to be able to pay their long term care claims,” Mr. McInerney said.

Prudential Financial, which discontinued policy sales in 2012, is still feeling the sting from mispriced policies. The company took a $1.5 billion pre-tax charge on its legacy LTC business in the second quarter this year.

Prudential started underwriting policies in the 1990s, and has approximately 211,000 in-force policies. The $1.5 billion charge is on top of $700 million the company added to its LTC reserves in 2012.

The charge is primarily related to assumptions the company changed with respect to a “morbidity improvement, which means people living healthier,” said Robert Falzon, Prudential’s CFO. Prudential had previously assumed improving morbidity would lead to a 1% reduction in claims cost per year over a 20-year period; it has now changed that assumption to reflect a 0% reduction in claims cost.

Prudential is also actively pursuing rate increases and benefit reductions, executives said.

Analysts at Moody’s Investors Service said Prudential’s second-quarter charge “has potentially greater implications for some of Prudential’s LTC peers, some of which have less conservative assumptions about morbidity and mortality improvements for their LTC books of business, or do not disclose them.”

Unum Group also disclosed it may need to increase its reserves up to $750 million after-tax in the third quarter to reflect updated LTC assumptions. CNO Financial Group also expects to record an after-tax loss of $650 million following an agreement the firm entered into with Wilton Reassurance Co., which will reinsure $2.7 billion of CNO’s legacy long-term-care reserves.