CHICAGO--(BUSINESS WIRE)--Further losses on legacy in-force long-term care (LTC) insurance will continue to negatively impact returns for the largest LTC underwriters over the near term, says Fitch Ratings. While the industry has significantly strengthened new business pricing and reduced benefit features, older vintage policies, particularly written before 2003, continue to be the areas of greatest risk.
A key uncertainty within the near term is the ability of the industry to win and implement regulatory approvals for premium rate increases on in-force business. Approved premium rate increases less than what is assumed in reserves could lead to further reserve charges.
The LTC insurance market has been plagued by adverse claim experiences and poor overall results, which have led to rate instability, insurer solvency concerns and market exits by numerous high-profile life insurers over the past several years. Mistakes in persistency, morbidity and interest rate assumptions have caused significant losses in relation to premiums collected in recent years. Most recently, Unum (Insurer Financial Strength: A/Rating Outlook: Stable) and Genworth (Insurer Financial Strength: BBB/Rating Outlook: Negative) reported significant losses tied to reserve charges in their LTC insurance businesses in fourth-quarter 2014.
While Fitch continues to view LTC as one of the most risky products sold by U.S. life insurers, the ratings impact has been fairly limited as current in-force individual LTC business accounts for less than 2% of industry reserves and premiums. Last month, Fitch downgraded the ratings on Genworth's life insurance companies due to concern about the aforementioned reserve charge and the company's more concentrated exposure to the LTC business, which accounts for about 42% of general account reserves based on Fitch estimates.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.