AM Best has reported that continued poor performance from inadequate pricing is a significant issue for US long-term care (LTC) re/insurers, owing to low interest rates, improving mortality, rising morbidity and policyholder utilisation assumptions.
The rating agency noted that loss ratios in the “beleaguered” LTC market continue to climb, with individual claims paid having now exceeded individual premiums every year since 2016.
Despite group US LTC claims being under 70% of premiums during the period, reserve increases have led to group loss ratios in excess of 100% since 2017.
And the steady increase in claims and the continuous increase in reserves have placed continued pressure on many carriers’ capital and earnings.
AM Best observed that US LTC premiums have essentially have remained flat in recent years, hovering at approximately $11 billion per year.
The number of new policies issued has declined, to 120,000 in 2019 from roughly 190,000 in 2015, representing just over 2% of the number of in-force policies.
Several companies with considerable LTC business have reported favorable results in 2020 as a result of the COVID-19 pandemic, as higher mortality has led to reduced payouts.
These trends are expected to be temporary, however, depending on when COVID-19 cases ease and vaccines become widely available.
Genworth Financial Companies and John Hancock Life Insurance Group accounted for more than 40% of the LTC market’s premiums alone in 2019.
But AM Best explained that the increased concentration in recent years is more function of companies reducing exposure or leaving the space rather than larger writers generating more business development.
Going forward, analysts expect LTC insurers to trend toward simplified policy design and fewer assumptions embedded in their policies, possibly helped by the NAIC taskforce which aims to stabilise the LTC market.
Along with carriers slowing down on offering lifetime benefits coverage and inflation-adjusted features, insurers may also soon begin to disregard lapse rates as an underlying assumption for product pricing, AM Best said.