Ameriprise Plans to Keep Its Long-Term Care Insurance Block

News October 28, 2024 at 01:12 PM
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What You Need To Know

  • Reinsurers want to get life or annuity blocks along with LTCI blocks.
  • Ameriprise executives say they would get a bad LTCI deal and a terrible deal for other business.
  • Ameriprise executives are also leery of having to worry about the strength of a reinsurer.
A strategy game. Via DAMS

Ameriprise Financial likes its closed block of long-term care insurance policies and has no plans to make a deal to get rid of it.

Walter Berman, the Minneapolis-based company's chief financial officer, stood up for the company's LTCI block last week during a conference call with securities analysts.

Ameriprise analysts looked carefully at opportunities to transfer the company's LTCI risk to a reinsurer during the third quarter, and they found that keeping the LTCI block would be a much better strategy, Berman said.

"Our assessment concluded that the market for stand-alone long-term care risk transfer deals has not matured and that high-quality blocks like ours are not receiving an appropriate level of differentiation by counterparties," Berman said.

What it means: Insurers and reinsurers may have different ideas about how blocks of LTCI business will perform.

If some insurers are comfortable with their blocks of LTCI business, that could help support the current modest LTCI revival.

The LTCI backdrop: Hundreds of insurers rushed into the LTCI market in the 1990s.

Insurers discovered in the early 2000s, after regulators imposed tough premium stability rules, that they had gotten many assumptions about how the policies would perform wrong and underpriced the coverage.

Most players have stopped selling new policies, and the companies administering most of the policies still in force have imposed dramatic waves of premium increases. Typical insurers and securities analysts see LTCI blocks as risky.

During the Ameriprise conference call, several analysts suggested that Ameriprise should transfer the LTCI claim risk to some other party, even if it might have to take a loss to do so.

The Ameriprise LTCI market review: One important consideration, Berman said, is that Ameriprise is a strong company with a block of LTCI business that is doing well.

The company stopped selling new policies years ago. The business division in charge of the LTCI policies still in force posted $9 million in operating earnings for the third quarter on $73 million in revenue and $2.7 billion in reserves, compared with $10 million in operating earnings on $71 million in revenue and $2.5 billion in reserves for the third quarter of 2023.

"We feel very good about the quality of our long-term care business, and it has performed better than our expectations over the past several years, which we expect to continue going forward," Berman said.

If Ameriprise wanted to transfer the block to another party, "our transaction will require us to include other books of business that would transfer tremendous value to a counterparty to offset unwarranted discounts applied to LTC," Berman added.

He noted that another concern about an LTCI reinsurance deal is that Ameriprise would then face ongoing concerns about the strength of the reinsurer.

Jim Cracchiolo, the company's chief executive officer, acknowledged that some reinsurers backed by private equity firms will consider making LTCI deals.

But "the reinsurance market is not very large for these types of books," Cracchiolo said. "And they're applying a very large discount, because it's a very immature business and is not their core type of business."

Ameriprise would probably have to combine an LTCI reinsurance deal with a money-losing reinsurance deal for a block of life insurance policies, even though the LTCI block and the life insurance policies are both currently performing well, Cracchiolo said.

That kind of arrangement might be appealing to a company that needs capital now, but "it just doesn't make sense for us," he said.

Cracchiolo said the company might be more interested in making an LTCI deal if the reinsurance market for LTCI blocks matures and reinsurers have more of an appetite for LTCI risk.

Credit: Olivier Le Moal/Adobe Stock

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