Checking in with Genworth and the LTC Industry:
The sale of Genworth to China Oceanwide Holdings Group Co. Ltd seems to be back on track and may be completed, by the end of this year. China Oceanwide announced their plan to acquire Genworth about two years ago.
Tom McInerney, Genworth’s president, told securities analysts that the plan is for Genworth Life and Annuity Insurance Company (GLAIC) and Genworth Life Insurance Company (GLIC) to get $175 million in capital from China Oceanwide, once China Oceanwide closes on Genworth. This is in connection with an agreement calling for China Oceanwide to infuse a total of $1.5 billion into Genworth.
It is anticipated that there will be additional premium increases on Genworth’s Long Term Care insurance policies. The company’s LTCI unit is reporting a $24 million operating loss on $1 billion in revenue, compared with a $5 million loss on $1 billion in revenue for the year-earlier quarter.
The ratio of adjusted LTCI claims to net earned LTCI premiums increased to 83%, from 78.8%, and use of benefits was worse than expected, according to Kelly Groh, the company’s chief financial officer. I
For more details on the various approvals needed to complete the sale and plans for the Genworth LTC business, check out: Genworth Reminds Analysts That GLIC Will Stand Alone. And: Delaware Schedules China Oceanwide-Genworth Hearing.
Other U.S. Life Insurers have a financial interest in having China Oceanwide complete the deal in a way that keeps Genworth Life solvent.
When insurers fail, other insurers may have to make good on the obligations not covered by the failed insurers’ assets by paying assessments into a guaranty fund. The failure of a company as big as Genworth could lead to other life insurers each having to pay large guaranty fund assessments. Learn more about the National Organization of Life & Health Insurance Guaranty Association.
In related news, other insurance companies that have long term care insurance policy blocks are likely to set aside more funds for claims on older policies during the third quarter. Unum Group (UNM.N) said in October that it had boosted long-term care reserves by $593 million, after taxes, partly reflecting its expectation that claims would remain elevated going forward. In August, Prudential Financial Inc. added $1.4 billion to its LTCI reserves, bringing the reserve total to $6.6 billion. Prudential said it had been assuming that slow, steady improvement in the health LTCI insureds would reduce the insureds’ need for long-term care services. In reality, the company said, the percentage of LTCI insureds who file claims has stayed about the same. Here’s 3 Things Unum Told Wall Street.
The pattern will continue for long-term care insurers through 2019, with many boosting reserves by at least ten percent, Fitch Ratings said in a recent report.
Reminder: Long Term Care insurance rate increases have to be approved in most states by that state’s Department of Insurance. Rate increases must be justified and can only be applied to a specific block of policies. This is basically only policies issued after the NAIC passed their model rate stabilization model act in 2000.
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