Long-term care policies loom over U.S. life insurance results

(Reuters) - Big U.S. life insurers are bracing for elevated payouts to owners of long-term care policies, which cover expenses like assisted living for infirmed and elderly customers.

FILE PHOTO - A MetLife Inc building is shown in Irvine, California, U.S., January 24, 2017. REUTERS/Mike Blake

Insurers that have long-term care businesses likely set aside more funds for claims on older policies during the third quarter, analysts said.

Unum Group UNM.N said on Wednesday that it had boosted long-term care reserves by $593 million, after taxes, partly reflecting its expectation that claims would remain elevated going forward. MetLife Inc MET.N and Genworth Financial Inc GNW.N are among those scheduled to report next week. Canada's Manulife Financial Corp MFC.TO is due to report on Nov. 7.

The pattern will continue for long-term care insurers through 2019, with many boosting reserves by at least ten percent, Fitch Ratings said in a recent report.

Some insurers have been reviewing assumptions they made when writing policies many years ago, when life expectancies were shorter and health care expenses were lower. Premiums they initially set have not been enough to cover claims from customers who live well into their 80s or 90s and require increasingly expensive care in nursing homes or their own homes.

“The good news is that we’re living longer and the bad news is that we’re living longer,” said Michael Frank, an actuary and president of Aquarius Capital, a consultancy in Port Chester, New York. “Long-term care insurers are dealing with multiple crises.”

In August, Prudential Financial Inc PRU.N said it was boosting long-term care reserves by $1.5 billion, a move that analysts said could be a harbinger for others.

At issue was an assumption about so-called “morbidity improvement,” a term that actuaries use to describe people becoming healthier and needing less long-term care in the future.

Some state regulators allow insurers to predict brighter outcomes, thereby lessening reserves, but others, including New York, forbid that assumption, industry and regulatory sources told Reuters.

“This is a hot-button item in the world of long-term care insurance,” said Fred Andersen, who leads a National Association of Insurance Commissioners group examining morbidity improvement assumptions, along with other factors that affect reserves and premiums.

Prudential stopped selling long-term care insurance in 2012, but still faces substantial costs from old policies. The insurer no longer considers morbidity improvement when calculating long-term care reserves, Chief Financial Officer Robert Falzon told analysts in August.

Prudential’s decision may cause other insurers to consider dropping the assumption too, said Moody’s Senior Credit Officer Laura Bazer.

Reporting by Suzanne Barlyn; editing by Lauren Tara LaCapra and Chizu Nomiyama