A new report questions the health of several insurers' long-term-care insurance businesses, including those of Genworth Financial Inc., General Electric Inc., Unum Group, Aegon Americas and Senior Health Insurance Co. of Pennsylvania. The situation could have implications for financial advisers and clients because these companies may try to
offload their liabilities.
Ratings agency Fitch Group, in its annual outlook on the U.S. long-term-care insurance market, said these five insurers have an inadequate amount of cash on hand to pay future insurance claims associated with old age, such as nursing-home stays.
With the exception of Aegon, the insurers also have "very high exposure" to the LTC market relative to their overall business mix, giving them outsized exposure to any negative market impact compared with their peers, according to Fitch.
"This remains a really big exposure," Anthony Beato, director of insurance at Fitch, said of long-term care insurance. "It's a very small percentage of premiums and liabilities within the industry as a whole, but it is the highest-risk [insurance product]."
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The ratings agency singles out Senior Health Insurance Co. — formerly named Conseco Senior Health Insurance Co. — as a "growing concern" because of a "large surplus deficit of $466.9 million that continues to grow." Fitch drew parallels between the company and two LTC insurers — Penn Treaty Network America and American Network Insurance Co. — that
liquidated in 2017.
The report comes less than a week after Harry Markopolos, well known as the whistleblower who warned regulators about Bernie Madoff's Ponzi scheme years before it became public, published a report claiming GE
needed $29 billion more in reserves to support its LTC business. GE vehemently rebutted those claims and accused Mr. Markopolos of trying to negatively influence the company's stock to benefit from short-selling.
Fitch made its assessments about the insurers — some of which are among the largest in the market — based largely on what it calls "aggressive" assumptions about the reserves needed to pay future benefits to policyholders, including assumptions about lapse rates, mortality and morbidity, investment yield and cost increases granted by state regulators on premium payments.
These insurers also have outsized exposure to "risky policy attributes," such as legacy policies issued before 2010 and policy features such as lifetime-benefit periods and inflation-benefit riders, Fitch said.
Some of the insurance companies disputed Fitch's conclusions.
"Our current reserves are well-supported for our long-term care portfolio characteristics," said GE spokeswoman Mary Kate Mullaney. "Our future liabilities depend on variables that will play out over decades, not years, and are assessed using rigorous annual testing processes, sound actuarial analysis and the application of regulatory and accounting rules."
Steve Winoker, vice president of investor communications at GE, pointed out in a note yesterday that the company isn't responsible for 100% of every policyholder claim since it's a reinsurer with a variety of contractual relationships.
Aegon spokesman Dick Schiethart said the company's assumptions are "based on a rigorous review process" and are reviewed in detail annually. The company's actual LTC claims experience over the past three years has "tracked well against management's best estimate," he said.
Genworth spokeswoman Julie Westermann said that the company believes its reserving process is appropriate based on reporting requirements and that it regularly monitors its actuarial assumptions.
Fitch, she said, also "gives little credit" to the "significant" premium increases the company has received to date, which are a large source of cash flow to help pay policyholder claims. Genworth has received cumulative premium increases and benefit reductions worth $11.5 billion on a net-present-value basis as of June 30 on legacy business.
Unum Group spokeswoman Mary Fortune said the insurer is focused on effective management of its long-term care business, "to advance our strong financial position and continue driving growth."
Spokespeople for Senior Health Insurance Co. of Pennsylvania didn't immediately respond to a request for comment.
The long-term-care insurance industry has been
dogged by a number of challenges, including persistently low interest rates, increasing longevity and a spike in health-care costs.
Insurers and their LTC products have also suffered a degree of reputational damage in the wake of
cost increases on in-force policies that forced consumers to pay more money in premiums or have their policies lapse.
Scott Olson, a long-term-care insurance agent, doesn't think financial advisers or clients should worry about the Fitch report since it's geared toward stockholders and not policyholders.
"Is [long-term care] making a lot of money for Aegon and Genworth? No, but it's working for the consumers," said Mr. Olson, co-owner of LTC Shop.
The report singles out Genworth and GE — as well as Manulife Financial Corp., the parent company of John Hancock Life Insurance Co. — as insurers it expects to divest or reinsure portions of their long-term care blocks over the longer term. Those blocks may be snapped up by
buyers such as private-equity firms or hedge funds, which have shown "significant interest" over the past few years in the LTC space, Fitch said.
That, some financial advisers said, may be cause for concern.
"It wouldn't be something that made me psyched," said Gregory Olsen, a partner at Lenox Advisors Inc. "My concern would be that everything will be done to maximize the profitability of the company, which may be to the detriment of the policyholder," such as requests for larger premium increases.
Even so, any reinsurer or buyer would be contractually obligated to pay future claims, he said.
