A.M. Best Special Report: Pre-2003 pricing continues to drag down results
OLDWICK, N.J., September 16, 2013—The individual long-term care (LTC) market has experienced numerous challenges over the past decade. The older blocks of business written before 2003, which were priced based on inadequate assumptions regarding claims costs, lapses and investment returns, continue to drag down companies’ results, requiring rate increases and reserve strengthening.
More appropriate assumptions with improved historical data now are being used in pricing and underwriting, but pricing remains inadequate and products have become extremely expensive. In addition, the LTC insurance market has continued to battle the challenges of lower than expected lapse rates, an extended low interest rate environment, high unemployment and longer claim periods, which have prompted many LTC insurance writers to either exit the market or pare back their LTC product offerings over the years.
A Capital-Intensive Product
As a capital-intensive product, LTC will continue to challenge small to midsize or monoline writers to maintain the necessary capital levels. It is more difficult for smaller companies—particularly mutual companies—with limited or no access to additional capital that have seen absolute and risk-adjusted capitalization weakened by the last recession and the continued low interest rate conditions. The LTC market continues to be concentrated, with the top 10 insurers accounting for approximately 90% of sales. According to LIMRA, Genworth Financial, John Hancock (a subsidiary of Manulife), Transamerica, Northwestern Mutual, Mutual of Omaha, New York Life and Massachusetts Mutual Life have the most individual LTC insurance in force. Genworth remains the largest of the individual LTC writers.
The barriers to entry remain strong, as the product requires significant capital investment for initial development and carries stringent statutory reserving and ongoing capital requirements. A.M. Best Co. continues to believe the larger, more diversified and better capitalized companies will remain active in this market. Contrary to the industry trend, Thrivent Financial, which last issued new individual LTC policies in 2003, recently announced it would resume the sale of LTC products to its affiliated members. To access a copy of this special report, please visit here. A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.