This discussion pertains to a Brighthouse, ex MetLife Insurance CO of Connecticut, SEC Consolidated Financial Report filing period ended December 31, 2007. The intent is to review a typical SEC filing for LTCI treatment but not reflect on a particular LTCI carrier, in this case Brighthouse.
In view of the recent GE whistleblower’s report on GE’s participation in LTCI as a reinsurer and Fitch’s warn on the industry as a whole, we have become interested in the topic of LTCI reinsurance industrywide. SEC 8-K, 10-K or other filings are one source to prune for such interest, including a hunt for specific LTCI reinsurance agreements (a typical example of a reinsurance agreement but not LTCI).
The pruning task was completed for this filing by highlighting sections that discuss LTCI generally and LTCI reinsurance particularly. Since Brighthouse is a large multiline insurer, the bulk of this document is of no LTCI interest, hence the need for selective reading. Even some of those highlighted parts may be difficult for the non-technical reader.
Highlighting starts on PDF page 23, with comments on page 26, 29, 30, both taking a séjour until page 79 then restarting with a significant discussion about reinsurance. There are two noteworthy comments on page 80 – 81. Some of the highlights interspersed the document serve as placeholders to “get back to”.
If you decide not to review the document & all its comments, my first-and-only-pick assertion & response is: Brighthouse / MET CT Assertion (pages 80-81, also listing their reinsurers at the time) “The Company reinsures its business through a diversified group of reinsurers. No single unaffiliated reinsurer has a material obligation to the Company nor is the Company’s business substantially dependent upon any reinsurance contracts. The Company is contingently liable with respect to ceded reinsurance should any reinsurer be unable to meet its obligations under these agreements”. Response: This statement is hard to fathom. It is conceivable that re-insurers have interlocking possibly incestuous relationship. While MET CT in this case could have both a relationship with both re-insurer A & B, MET CT may not be privy to reinsurance agreements between A and B. If, for example, B were to fail, A might fail. MET would be exposed to failures of both. To assess (LTCI) risk exposure at the highest level would require a complete understanding of all reinsurance agreements between all re-insurers, which does not seem possible given an environment of privacy.
Note that the carrier’s assertion predated the Financial Crisis (2007 & later) where it was demonstrated the interlocking of financial instruments, such as mortgage loans, derivatives, etc., (many of these instruments also private or OTC) had a correlated & cascading effect. Is the same true with LTCI?