GE's LTCI Block Might Be Different: Rating Agency

The overall state of the U.S. long-term care insurance (LTCI) industry could be healthier than the blocks of LTCI business reinsured by General Electric Co.'s reinsurance units.

Analysts at Moody's Investors Service give that assessment in a new analysis of the big GE reserve shortfall.

Kansas regulators have asked GE to add $15 billion in reserves to GE's two Kansas-based reinsurance units over seven years. The charge for those contributions amounts to $9.5 billion before taxes, under General Accepted Accounting Principles (GAAP) rules.

The Moody's analysts describe the charge as "surprisingly large." They suggest that regulators and investors may respond by asking insurers to provide more information about all blocks of LTCI business.

GE's blocks may look worse than typical blocks, however, because GE has assumed responsibility for the blocks from the insurers that originally wrote the coverage, and because GE has operated the reinsurance business as a runoff business, the analysts write.

A runoff business is a business that continues to serve existing customers but no longer tries to make new sales.

GE's reinsurance units have been administering about 310,000 stand-alone LTCI policies. The units account for about 4% of the total U.S. LTCI market, according to the Moody's analysts.

Insurers that have kept their own LTCI blocks on their own books may know more about how the policies were written, and what the insureds are like, than a company that has bought a block of LTCI business from the primary writer, according to the analysts.

A company that is actively in a market may also know a lot more about current conditions than a company that is trying to operate in a market in runoff mode, the analysts write.

"Insurers with deteriorating experience have been aggressively pursuing rate increases," the analysts write. "Although some of the cedants to GE have received rate increases, it is possible that GE's block has not received as much in rate increases as have the LTC blocks of several other insurers."

Still another challenge GE face is that much of the business it reinsures was issued years ago, in New York state, with low prices and generous policy features.

In New York state, "it is traditionally more challenging to get rate increases approved," the analysts write.

In one chart, the analysts compare the ratio of actual-to-expected LTCI claims at five carriers. In another, the analysts compare the issuers' ratios of claims to premiums.

At three of the companies, the ratio of actual to expected claims has bounced between 80% and 120%. At MassMutual, for example, the actual-to-expected ratio has hovered around 100%. At that company, the ratio of claims to premiums is just 23%.

At two other insurers, the actual-to-expected ratio has always been over 140%, according to the analysts' data.

A copy of the Moody's analysis is available behind a paywall here.

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