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LTCI Public Meeting in CT

A group of CT LTCI Consumer activists learned that when the term solvency is put forth by regulators, in this case the CT Dept. of Insurance (DOI), it refers to an entire insurance company, including multiline companies who might offer life insurance, annuities, property & casualty, other lines. On Wednesday, Oct. 16th 2019, a public forum was held to discuss this and other related LTCI topics. Stakeholders who appeared were legislators, policyholders, reporters, agent / brokers, and consumer activists.

Posted by State Senator Saud Anwar on Wednesday, October 16, 2019
CT Officials discuss LTCI issues, including solvency concerns

Key points from the presenters:

  • The LTCI industry is on shaky ground. One company (Penn Treaty) has already been declared insolvent and presenter(s) said that several unnamed others are on a watch list. Should I worry if I have my annuity with a company having a large exposure to LTCI?
  • What happens when a company does go insolvent and the effect on policyholders, other insurers who are charged an assessment, and potentially the taxpayer.
  • LTCI insurers need large rate increases to remain solvent due to what their models tell them about future claims projections.
  • The DOI is available to explain to policyholders what some of their options are in addition to paying the increased premiums or reduced coverage, particularly as it relates to non-forfeiture (i.e. lapse policy, but retain benefits). It was suggested that policyholders work with their advisors, including those that sold them the product.
  • Some states allow for a multiline parent company to spin-off their LTCI division such that other lines-of-businesses are protected (as well as shareholders) while the spun-off company “twists in the wind” (policyholders).
  • NAIC task force will be looking for constructive, compromised solutions in 2020 that might be favorable to both policyholders and carriers.

On the last point, “don’t hold your breathe”! It is to states’ discretion what they chose to implement from NAIC proposals.

As a participating member of this forum, I found the format too one-way, stifling, and orchestrated without input from the Consumer side. This forum was heavily weighted with discussion about solvency without consideration of possible remedies that would protect consumers’ interests.

As an attendee, I couldn’t help wonder, “where have state regulatory agencies and NAIC been all these (30) years to allow the LTCI industry get into such a condition”?

Strategic Economics of Health

The research team first studied the topic of health in 2009 to determine if and how it might be included in our web-based financial planning architecture. Our belief then, as it is now, not having a Health module in the architecture would be a serious omission. Yet, nearly all retirement readiness tools focus solely on investments and lifestyle spending habits. In 2009, we published an initial health framework to supplement our financial models. Lately, we have dabbled with a closely related topic known as Subjective Well Being (SWB), subject matter discussed in another blog category. Much has changed to alter our original health framework, the Affordable Care Act (ACA) being one of the most significant items.

So what is it that we exactly do in a Health module consisting of more than 10,000 lines of C# code? Here is the simplest explanation possible in 50 words or less. From a health-oriented survey form, we take a client’s answers and determine a benchmark score. This score is used to project future health scores along with health care costs. Health insurance is then applied to offset health costs, but there is the added premium expense.

What are the types of Health insurance? At the highest level of abstraction, you have: Medicare & Supplements for those aged 65 & above; ACA has 4 major classes of Bronze, Silver, Gold, and Platinum. Within each, there are a myriad of specific choices depending on your locality.

You can self-insure. Insurance has what is known as loss-ratios, a value that suggests how much premium is returned to the policyholder in terms of benefits on average. Typically, this might be $80 / $100 (80%) for health insurance, so on average you lose with health insurance. In assessing the probability that your financial plan is a success, if you encounter an unfavorable tail risk, your plan that works for the average will fail in those cases.

You can run highly sophisticated readiness-to-retire Monte Carlo simulations models with glam outputs all day long at your favorite investment web-site, but a lack of consideration of health finances renders such exercises as academic.

Ironically, a poor health state may help one’s financial state if it suggests early mortality, usually not one’s goal. There is also the question of morbidity — living long, but not healthy requiring significant, expensive care.

Health is an extremely broad topic. We have confined our efforts to acquiring large health data sets and modeling with many of these factors and others. After all, those 10K lines of code must be doing something meaningful!

N-O-vation

This topic first surfaced for me from a fellow blogger, Joe Belth, who has been studying insurance practices for a very long time.

First, what is novation? For that, I refer you Joe’s web-site. An alternate description can be found at the web-site Investopedia. Besides novation, other corporate shell games are discussed here to shine light on current LTCI industry practices.

Why is novation important? It is often the case that a parent company wishes to dispose of an ailing LTCI division that could hamper corporate earnings for years. This was discussed at a recent CT LTCI forum by the Department of Insurance. Joe’s No. 220 blog titled “Connecticut Violates the Constitutional Rights of Insurance Policyholders” suggests CT might be in-line with the plan of having strong carriers jettisoning their dogs (without disclosing to those most affected).

Examples can be found where such transfers, sale of business line, or similar other methods leaves policyholders’ position more financially vulnerable than before. Note that this is true not only for LTCI but for other insurance product lines (e.g. variable annuities containing complex, many moving parts promises). If you bought LTCI or other long duration product from an insurer with a AAA-rated and that was a critical deciding factor, are you now happy that the party responsible to honor your prospective future benefit is considered weak hands?

If you read Joe’s blog carefully, you should carefully note the phrase “If the policyholder consents…”. Say you receive a letter informing you that your LTCI policy is now headed to a China-mart insurer (see footnote example #1) with unknown credentials. What is the likelihood that you also receive a note asking for your consent? Zero, by default you consent. The default rules are not set up in your favor.

What could be your response if you receive a surprising letter informing you that your debtor (obligator) is a company you have never heard of before? One action would be to inform the sender by registered letter that you do not consent to your policy being part of the corporate shell game transaction. You would only do this to protect your interest but only upon assurance that your current company appears to be the financially stronger than the prospective one.

I have to believe insurance was never intended to call upon policyholders to consider corporate shell games & due diligence nonsense.

1. China Oceanwide Transaction

On October 21, 2016, Genworth Financial, Inc. (“Genworth Financial”) entered into an agreement and plan of merger (the “Merger Agreement”) with Asia Pacific Global Capital Co., Ltd. (“Parent”), a limited liability company incorporated in the People’s Republic of China and a subsidiary of China Oceanwide Holdings Group Co., Ltd., a limited liability company incorporated in the People’s Republic of China (together with its affiliates, “China Oceanwide”), and Asia Pacific Global Capital USA Corporation (“Merger Sub”), a Delaware corporation and an indirect, wholly-owned subsidiary of Asia Pacific Insurance USA Holdings LLC (“Asia Pacific Insurance”), which is a Delaware limited liability company and owned by China Oceanwide, pursuant to which, subject to the terms and conditions set forth therein, Merger Sub would merge with and into Genworth Financial with Genworth Financial surviving the merger as an indirect, wholly-owned subsidiary of Asia Pacific Insurance (the “Merger”). China Oceanwide has agreed to acquire all of our outstanding common stock for a total transaction value of approximately $2.7 billion, or $5.43 per share in cash. At a special meeting held on March 7, 2017, Genworth Financial’s stockholders voted on and approved a proposal to adopt the Merger Agreement.

Genworth Financial and China Oceanwide continue to work towards satisfying the closing conditions of the Merger as soon as possible. In December 2018 and January 2019, we received the remaining approvals from our U.S. domestic insurance regulators…(For full discussion, click on the following SEC Edgar link)

GENWORTH FINANCIAL, INC., FORM 10-K, ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018, p4.

2. Private Equity Firms Are Acquiring Long-Term Care Insurance Policies. What Will It Mean For Policyholders?

…Kudos to Reuters reporter David French for spotting this trend, just the latest example of the deep trouble long-term care insurance carriers find themselves in. Most insurers have long-since stopped selling policies—perhaps only a dozen or so remain in the market. But even those who are no longer active are stuck with billions of dollars in liabilities from future claims on old policies…”

by Howard Gleckman, Senior Contributor at Forbes

Subjective Well Being

Our research team has studied the topic of subjective well being to determine whether there is merit to consider its inclusion in our web-based life style planning architecture. Our initial efforts (in 2005) focused solely on financial aspects, with concentration on readiness to retire questions and overall financial state. Since then, our efforts expanded to include both physical and mental states as all 3 states in some ways might be viewed as an individual’s score. Money without health or happiness might not be where many wish to head.

Further, our research shows that the 3 states are interelated and interdependent. Obviously, poor health is not good for finances. By contrast, good health management may lead to an improved financial outcome.

Some would believe that the topic of subjective well being (SWB), sometimes referred to as Happiness, is nothing more than the newest pseudo-science. Yet, when we monitor research advances on the topic, increasingly we find hard data that links to effects on both physical and financial health, thus its importance to us.

Methods within our current lifestyle planning architecture utilize a well-tested though modified survey questionnaire, much like the one you may have completed in a recent doctor’s visit, but instead of health, a survey that measures and reports a client’s mental state. By visiting our survey over a lengthy period, a graphical trending tells a story. Simple, but that’s a start.

As both the SWB industry and our own understanding grows, particularly as it relates to what data sciences reveal are the interdependencies on an individual’s health and financial status, additional knowledge and processing methods will be added to our 3 legged stool architecture and, along with this blog, surface non-obvious directional choices for clients or readers to consider.