Genworth Breaks Its LTCi Tie With AARP

By Linda Koco InsuranceNewsNet

Genworth has made it official. Effective June 1, it will cease selling AARP-branded long-term care insurance through its Genworth Life Insurance Co. and Genworth Life Insurance Co. of New York companies.

The news broke this week when Genworth issued its first quarter 2013 results, and Genworth followed up on it the next day with a separate statement. As of this writing, AARP has not posted any messages on its website about the impending change.

The company said in a statement that existing insureds' long-term care insurance (LTCi) coverage written through the program will not be affected by the change.

The Genworth statement does not say anything about the company’s plans for other LTCi products.

However, the first quarter report released the previous day does point to plans to stay in the business. In announcing the “cessation” in that report, for example, Genworth said that it intends to focus on LTCi sales and product offerings “to improve returns.”In addition, the carrier said that it has introduced a new generation LTCi policy in 31 states, and has also filed for rate increases in 49 states.

The leading LTC insurer

What this company does or does not do in LTCi makes a difference. The company is widely viewed as the leading LTC insurer, with a market share estimated to be more than 30 percent, perhaps higher. So, whether it stays in the business or not is important to LTCi producers—and also to competitors.

Pat Foley, president of distribution and marketing for Genworth, said the company has been offering certain AARP-branded LTCi products to AARP members since 2007. He said Genworth is committed to providing “exceptional service” to AARP members who have purchased the AARP-branded LTCi policies.

Although not a wholesale market exit, the cessation is likely to send another shiver through the LTCi marketplace.

Last year, UNUM Group and Prudential Group Insurance, a business of Prudential Financial, both announced they were was discontinuing sales of new group LTCi. In 2010, MetLife left the individual LTCi market, and in 2009, Allianz left the same market. Other carriers have implemented double-digit price increases or substantial underwriting restrictions.

The continued low interest rate environment often has been cited as a precipitating factor for these developments, but the last recession took its toll too, as buyers put off making purchases and carriers looked for ways to manage the economic whirlwind.

The end of the Genworth/AARP program will be a pressure point for consumers as well, since the program has been viewed as a major marketplace for seniors looking for LTCi. How AARP responds to the move could make a big difference in market impact.

Genworth LTCi sales

Genworth is not without some bright spots in its LTCi book. For example, net operating income from LTCi sales was $20 million in first quarter 2013, up from $7 million in the prior quarter. However, the first quarter was down from $35 million in operating income in first quarter 2012.

“The current quarter included $6 million of net favorable actuarial reserve and other adjustments,” pointed out Genworth’s first quarter 2013 report.

In addition, improved claim termination rates resulted in $14 million lower incurred losses compared to fourth quarter 2012, the company said. “Claim termination rates were also favorable relative to the prior year, but were more than offset by a higher average reserve build on new claims and other adjustments.”

Like many life, long term care and annuity carriers, the company did report experiencing challenges from lower investment yields and the prolonged low interest rate environment.

For instance, it says that first quarter earnings were reduced by $9 million from the prior quarter. That happened “as investment yields were impacted primarily from lower limited partnership income,” the first quarter report said. “Earnings were also reduced by $7 million from the prior year as investment yields were impacted by lower limited partnership income and the low interest rate environment.”

The investment yield impacts were “partially offset” by net investment income on assets backing growth of the block, the company added.

Individual LTCi sales have been hurting, however. In first quarter, they decreased to $35 million from $60 million in fourth quarter 2012, according to company figures.

Apparently, those big fourth quarter results were not typical, however. According to the company, they reflected “accelerated sales” that had occurred as buyers completed LTCi policy purchases in advance of new pricing and portfolio actions that had been previously announced. Those accelerated sales subsided in the first quarter this year, Genworth indicated.

Still, first quarter individual LTCi sales were also down compared to first quarter 2012 results. They dropped to $30 million from $45 million in first quarter last year, the company report showed.

In response, the company said that it:

· Is continuing to use LTCi reinsurance as part of its capital optimization strategies.

· Suspended sales of individual LTCi products in California in March, due to what the company says was the “return profile” on those products, which were “earlier generation” LTCi policies. The company plans to debut a new LTCi product for California in third quarter 2013, however.

· Launched a new LTCi product in 31 states in April. Called Privileged Choice Flex 2, it uses gender-distinct pricing for single applicants and blood and lab underwriting requirements for all applicants.

· In third quarter 2012, filed for double-digit rate increases on LTCi in force premium in 49 states. If approved, the increases will raise the average premium on older generation policies by more than 50 percent, and on new generation policies by more than 25 percent, over the next five years.

· Announced plans to cease new sales of the AARP-branded LTCi policies on June 1, as mentioned above.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].