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)

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

Author: Samuel Cuscovitch

Research scientist / strategist.

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