Fitch Wants Insurers to Post More LTCI Performance Data

But Fitch says it believes many insurers used aggressive assumptions to underwrite, price and reserve for LTCI before the early 2000s. As insurers test, and correct, those overly aggressive assumptions, many will find they have to adjust their reserves, the firm predicts.

Many insurers will take one-time charges for material reserve changes over the next 18 months, and that will increase earnings volatility, Fitch says.

In some cases, the LTCI charges could be big enough, relative to reserve levels, to hurt the insurers' ratings, Fitch says.

"Fitch will analyze each situation on a case-by-case basis, taking into account how the announced charges compare to expectations incorporated into our current rating assumptions," Fitch says.

Fitch does see one bright side to the problems,: Once life insurers update their LTCI loss assumptions and strengthen their LTCI reserves, they could have an easier time finding reinsurers willing to take unwanted LTCI blocks off their hands.

Up till now, the number of LTCI block reinsurance deals has been limited, in spite of increases in interest rates that should make the environment for LTCI reinsurance deals more favorable, the firm says.

— Read Fitch: Rising interest rates could hurt, too, on ThinkAdvisor.

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