A big LTCI block buyer: 5 things to know

3. Beechwood Re did not do the CNO deal because it sees a bright future ahead for LTCI policies.

Taylor said Beechwood Re likes a deal that's too small to interest the big reinsurers; a chance to search in large piles of risk for slices of risk that it likes; and a deal "with hair on it."

Taylor uses the term "hair" to refer to "impaired business." Beechwood Re makes a point of considering deals that involve business with problems.

"Long-term care is perfect for that," Taylor said. "Nobody is writing long-term care business going forward, because it's such a horrible risk to write. That's the perception."

Meanwhile, at Beechwood Re, Taylor said, "there are no taboo things."

Although Beechwood Re will look at deals with "hair," the company wants the other party to do something about the hair. In some cases, Taylor said, that may mean the "seller" of an LTCI block has to write a large check to get Beechwood Re to take a block.

"We're not going to take the risk and underfunded liability without feeling we're being protected for doing that," Taylor said.

See also: See also: 12 countries: Who in the world can afford nursing home care?

Image: The view from Beechwood Re's office in Manhattan (LHP/Allison Bell)

4. For Beechwood Re, the sweet spots are pleasant, midsize deals, and deals that look better once you get to know them.

Feuer and Taylor declined to get into any theoretical discussions about how conditions in the LTCI market could improve, or what insurance regulators or other regulators could do to help.

"There is no silver bullet in long-term care," Taylor said. But he and Feuer said they believe LTCI issuers would be facing serious problems even if interest rates were higher and investment yields were better.

Aside from the fact that policy lapse rates have been lower than expected and the number of claims has been higher than expected, "the liability itself has been redefined" by court cases that have changed when the issuers must pay benefits, according to Taylor.

Early on, when the issuers tried to deal with the problems by taking an aggressive approach to claims management, that led to complaints about wrongful denials, and serious reputational risk, Taylor said.

Beechwood Re is looking for deals that may be unusual but are structured in such a way that they're not likely to be particularly volatile.

See also: 5 top LTCI rescue ideas from other countries

Image: Beechwood candy (LHP/Allison Bell)

5. Beechwood Re prefers to get its LTCI blocks well-aged.

Feuer and Taylor said that most of the insurers that come to Beechwood Re have deals that are in the ballpark of what the company wants to see, and rational ideas about prices. When deals are being negotiated, "rarely do we find that the primary issue is price," Feuer said.

Because the market is sophisticated and rational, Beechwood Re is able to form relationships with as many as 20 percent of the clients that come in the door, the executives estimated.

One of the factors that made the CNO LTCI deal attractive was that CNO was prepared to increase the reserves of the block to an adequate level before putting it in Beechwood Re's arms, Taylor said.

Taylor said another attractive characteristic was that the average attained age of the insureds in the block was about 80, and has now gone up to about 83.

Blocks of policies insuring older people tend to be more stable and easier to analyze than blocks of policies insuring younger people, because actuaries can look at the older insureds' claims for long-term care (LTC) services and get a sense of what morbidity will look like, Taylor said.

Some of the insureds in the block may have claims that will last until the 2050s, but "now we're managing the tail end of that liability," Taylor said.

Feuer said Beechwood Re also looks for insurers that want a real partnership.

"We're not just doing the trade," Feuer said. "These are long-term relationships." 

See also:

5 reasons an LTCI co-manufacturer is still in the game

Federal LTCI program architect to speak at AALTCI conference 

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