Pru pulls plug on another long-term-care product

Prudential Financial Inc. has pulled the plug on its long-term-care insurance business, ending sales of group policies Aug. 1. The insurer announced Wednesday afternoon that it will discontinue sales of new group LTCI policies starting in August in all states. The carrier will continue to offer the product in Indiana, Iowa, Kansas, Louisiana and South Dakota for “a period of time,” as per state law requirements. Prudential will continue accepting group LTCI enrollments until June 30. As a result of the exit, about 50 employees will lose their jobs, said Sheila Bridgeforth, a spokeswoman for Prudential. The carrier pointed to continued low interest rates as a factor in its decision, as well as the company's desire to push growth in group life and disability. Just four months ago, Prudential backed out of the market for individual LTCI. Puny interest rates have been problematic for insurers, as they crimp the returns the companies get from their bond portfolios, which hurts profitability. Further, some of those returns are supposed to go toward covering LTCI claims. At first blush, it would seem to make more sense for an insurer to drop its group long-term-care business before eliminating individual coverage, due to the large numbers of insured people covered in a group policy. In reality, the risk profile is higher for individual LTCI, according to Edward Shields, associate director of equity research at Sandler O'Neill + Partners LP. “My understanding is that group coverage has a lower utilization rate than individual,” he said. “They had more lives under group, but they didn't have to worry about 100% of the covered lives making claims.” Clients with individual policies tend to be more likely to make claims at some point, he added. Prudential's departure from LTCI business will only have a negligible impact on its earnings, as the business accounted for less than 1% of premiums in 2011, Mr. Shields said. “It's a fractional penny on earnings,” he added.