New Book With Older Problems

MET filing SERFF: META-132242388 came rolling into CT the other day. It contains many Books, but the one that first caught our eye was one called VIP2-OLD (LTC2-FAC, LTC2- VAL, LTC2-IDEAL and LTC2-PREM) affecting 2,761 CT residents. It’s a relatively new Book having started in 2005 applying to purchasers up to Jan 15, 2009. It operated for some time without a rate increase but in 2016, a 10% increase was authorized in CT. Nationally, 57,806 policyholders are part of this Book.

The entire filing (META-132242388) is interesting in that you can look at multiple era books and see different behaviors:

              1. 2009 – 2011, VIP2 New Book
              2. 2005 – 2009, VIP2 Old Book
              3. 2000 – 2004, VIP Series
              4. pre-2000, LTC97 Series

Per VIP2-OLD filing (+91% increase over 5 years starting in 2021), using the national experience exhibit I-A, future rates would be as a multiple of original premiums: 2020, 1.19x; 2021, 1.32x; 2022, 1.58x; 2023, 1.88x; 2024, 2.18x; 2025, 2.32x.

Appears there is no safety in this particular New Legacy Book. The sad news is that this book, whose premium half-life was 2018, will age quickly to 74% of its life-cycle by 2025. Yet, it is very early in its lifecycle of claims experience. The national lifetime loss ratio, even if the request were fully granted would be 103% (CT experience is worse at 122%), some distance away from the CT statutory minimum of 60%. If things stay the course, policyholders are vulnerable to facing a compound annual rate increase of 13% and 14% beyond 2025, a figure derived based on the national and CT exhibit, respectively.

We often hear the argument that the Older Books (those starting in the early 1990s) did not have sufficient data to project claims accurately and thus were considerably underpriced. This Newer Book should have the benefit of 15 years of experience to have priced premiums more accurately. However, the trajectories of both old and new are starting to look the same. What’s the real deal!?

We do not study every book that is filed. This one has a message. Policyholders of Newer Books would be well-advised to understand the lessons of the past of Older Books. Thus far they have been granted relative immunity, but that’s changing. The cohort mostly affected are now in the age range of 65 – 79 (based on Issue Age data), some distance away of the prime age to go on claim. So like the more senior members of Older Books, this cohort may have at least a 10-year overhang of anxiety making future choices whether to pay escalating premiums or exercise reduced benefit coverage options.

Welcome to the club!

MET’s VIP2 New Book are sales after Jan 15, 2009. MET ran this this book for 2 years, then MET withdrew from the industry. Sales were not great, but this case seems illustrative of the industry during this era (post 2009).

MET is asking for a 58% increase for this VIP2-NB, spread over 3 years, the 1st increase for this book. This might not seem like a big deal relative to increases for other books, but when you consider that by this time, original premiums were much higher for comparable coverage. In one case we examined (and we will examine more), for the same coverage premiums will be 3.52x original of coverage sold to what MET offered prior to 2005. In addition, we expect further increases down the road, such that we believe by 2025, premiums could go as high as 7.6x original.

The lesson for us – it’s not only the % rate increase to consider, but one must also factor how premiums for given coverage has changed over time. This book was created with an alleged fair price in 2010, still actuarial justified rate increases await these poor souls who are merely 10 years out of he box. The other remarkable thing about this book is that the majority of policyholders (70%) chose Simple 5% or No Inflation BIOs, far surpassing 5% compounded benefit (12%) or Future Benefit Option (FBO, 18%). There is NO lifetime, the majority having selected 3-year coverage. Far less coverage than prior LTCI offerings, yet high premiums – and about to go up, maybe not to the same degree, but starting from a much higher base premium.

The VIP1 Series Book, is the one affected by the Margery Newman class-action settlement for those who chose the Pay Reduced at 65 & have their rates frozen. Unfortunately, those 94% of PHs that chose another payment option, the news is not good. While the requested increase is only 9.44%, the Book would still be underpriced having a lifetime loss ratio of 110%. The Book is moderately aged and so our metrics show that once all rate increase take effect by 2023, the Book would be subject to increases of the order of 16.5% annualized for the remainder of its life (to 2070). It’s unclear whether the 94% not part of the settlement will be ultimately responsible for paying the beneficiaries of the class settlement. The filing makes no mention of the Margery Newman case since the settlement has yet to take effect.

MET’s LTC97 Series Book, sold from January 1999 – July 2003, a requested increase of 33.54% over 3 years would affect 579 CT PHs starting in 2023. This Book is a great candidate for a separate blog Well Over The Top #2, but here is a short summary. The requested increase is on top of two earlier rate increases (approved in CT) for a net premium of 2.58x (aggregate) of original. The new target loss ratio is 120% on a very aged book leaving PHs (14544 nationally) extremely vulnerable to increases down the road. Using our Data Science metrics, this book appears to be very late in their filings to the detriment of its PHs, the 1st increase in 2017 (in CT). Why such a long delay given with just under 2 decades of claims experience that showed actuarial underpricing (which could have justified a uniform annual increase of 6.8% since 2001)?

Author: Samuel Cuscovitch

Research scientist / strategist.

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