2Q Roundup: Brighthouse Posts Loss; Insurers Face LTC Pain

Brighthouse Financial on Monday reported a second-quarter loss of $239 million as expenses rose and investment income dropped, the company said.

The Charlotte, N.C.-based company, a big seller of annuities, reported a profit of $246 million in the year-ago quarter.

Brighthouse, which celebrated its first-year anniversary as a publicly traded company, expects to reach its year-end targets, CEO Eric Steigerwalt said in a conference call.

Quarterly expenses reached a “high-water mark” of $288 million as the company invested in technology platform and a branding campaign, the company said.

Annuity sales rose 42 percent to $1.4 billion due primarily to the company’s Shield annuities and fixed index annuities, the company said.

Brighthouse reported $2 million of life insurance sales, but expects to become a much bigger player in the life segment with the launch of a new product at the end of this year or early next year, Steigerwalt said.

The company manages an in-force block of life insurance policies with $421 billion in face value.

Spun off by MetLife a year ago, Brighthouse still has transition service agreement, or TSA, contracts with MetLife.

Every TSA that Brighthouse exits lowers its expenses and the company exited 12 agreements in the second quarter.

Fewer than 85 TSAs remain between Brighthouse and MetLife, Steigerwalt said.

The company reported a loss of $2.01 per share. Earnings, adjusted for non-recurring costs, came to $1.27 per share.

Results did not meet Wall Street expectations. The average estimate of five analysts surveyed by Zacks Investment Research was for earnings of $2.03 per share.

The annuity and life insurance company posted revenue of $1.7 billion in the period. Its adjusted revenue was $2.09 billion.

Prudential Stumbles Over LTC Reserving

Accounting for LTC liabilities seems to be haunting insurers like a bad dream with Unum and Prudential the latest companies to suffer financial setbacks.

Prudential last week said it would take a charge of $1.5 billion related to its long-term care policies and updated actuarial assumptions.

The charge hit Prudential’s bottom line hard as second-quarter net income of $197 million fell from $419 million in the year-ago period.

The Newark, N.J.-based company said it had profit of 46 cents per share. Earnings, adjusted for non-recurring costs, came to $3.01 per share.

Results fell short of expectations. The average estimate of six analysts surveyed by Zacks Investment Research was for earnings of $3.08 per share.

Charge Of $750M Possible at Unum

Just days before Prudential’s announcement, Unum said it could be taking a charge of up to $750 million for LTC policies, pending accelerated work on the company’s LTC annual reserve analysis.

“Our current thinking, subject to the completion of our work is that we may need to increase our reserves as part of our third-quarter closing process,” CFO Jack McGarry said in an analyst conference call.

The surprises, coming after GE said it would boost reserves by about $15 billion over seven years in connection with its run-off insurance portfolio, signal more uncertainty around how much exposure life insurers face with their LTC blocks, analysts said.

Analysts took GE’s red flag as a signal to dig more deeply into the LTC blocks and note the increases in claims incidence earlier this year.

Many insurers are saddled with LTCi policies sold years ago, but which were underpriced yet afforded very generous benefits such as compound inflation feature. Those benefits are getting more expensive every year as LTC costs rise and interest rates remain low.

To meet their LTCi claims, insurers are going back to regulators and asking for premium increases or seeking to sell or mitigate their LTC books of business through reinsurance deals.

CNO In Deal With Wilton Re

In a deal with Wilton Re, CNO Financial said it would cede $2.7 billion in nursing home and LTC business written before 2003 and held at its subsidiary Bankers Life.

The agreement, which will incur a change of $650 million before the end of the year, will improve CNO’s cash flow and lower the company’s exposure to volatility.

Bankers Life will pay a commission of $825 million to reinsure the block, CNO said.

Once the deal is closed, LTC reserves will comprise only 13 percent of the company’s reserves, down from 25 percent.

In addition to the Wilton Re deal, CNO said its subsidiaries would no longer issue home health care-only LTCi policies and cease selling nursing home LTC policies with benefit periods longer than three years – in effect moving to shorter-duration products.

“It is clear these are the products that resonate most with our customers as the average benefit period across new sales is currently 10 months,” said Gary Bhojwani, CEO of CNO.

Remaining LTC policies with benefit periods of less than one year will represent over 50 percent of the in-force block while policies with lifetime benefits will fall to less than 3 percent, the company said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].