$100B gap looming for long-term-care insurers
Reserves strained with costs up and people living longer.
General Electric shocked Wall Street last month when it announced a reserve shortfall of $15 billion in its portfolio of long-term-care insurance.
Wall Street had better get used to it.
It’s an industrywide problem. There’s fear among analysts and some investors that GE may have to reserve more. Altogether, long-term-care insurers will have to boost reserves by more than $100 billion, according to Mike Kreidler, Washington state’s insurance commissioner. The insurers’ eventual gap may ultimately surpass $300 billion, Credit Suisse Group analysts said last year. Twelve million Americans will need the coverage by 2020, according to America’s Health Insurance Plans, a trade group.
MetLife, Prudential Financial, Genworth Financial and John Hancock unit are among the insurers that have offered long-term care. It helps pay for nursing homes, assisted-living facilities and other aid for people with chronic maladies.
GE shares have fallen more than 20 percent since its Jan. 16 announcement of the shortfall. The same day, the company also revealed a $6.2 billion charge related to the long-term-care portfolio. GE has said it will continue to analyze its business on an annual basis and its funding requirements could change based on interest rates, death rates and other variables.
Kim Friedman, spokeswoman for MetLife, which quit selling the policies in 2012, declined to comment. John Hancock spokeswoman Melissa Berczuk said the company stopped offering standalone long-term-care insurance in 2016 and declined to comment further. Prudential spokeswoman Laura Burke declined to comment.
Genworth, which split off from GE in 2004, said Tuesday that margins for some of the business narrowed for at least the third straight year. If that continues, the need to boost reserves increases.
Julie Westermann, a Genworth spokeswoman, said the company regularly evaluates the adequacy of its reserves and has taken a “very proactive approach to rate increases, without which we would have needed much larger reserve increases.”
The business became popular in the 1980s, and insurers couldn’t have predicted back then that people would begin to live longer and health-care costs would surge, straining reserves. Since insurers invest policyholder funds mostly in bonds, 10 years of rock-bottom interest rates didn’t help either. Insurers need the reserves to backstop their ability to pay claims.
GE, which has diversified far beyond its industrial roots, was a pioneer, winning about one-quarter of the market by 2001, according to a presentation by the National Organization of Life and Health Insurance Guaranty Associations. Last month, Kansas’ state regulator told GE it could add to its reserves over several years, and the $15 billion is an estimate.
“The actual amount may vary each year based on the company’s cash-flow testing results,” according to the regulator.
The National Association of Insurance Commissioners, the industry’s governing body, has set up a task force that includes Washington state’s Kreidler to assess the solvency of long-termcare insurers.
No one “is really certain of the extent of the concern,” Kreidler’s spokesman said in an email. “The NAIC is trying to get a better handle on it.”