Metlife Exiting LTC

[Mr_Ed]

There is much more to come of these types of announcements. A long time ago on this board, I described how the large LTC companies, Genworth, being one of them, were facing major headwinds in their in regards to their LTC business. I was called every name in the book, and told of how ignorant I was of the business. But I know like many, that these companies are walking zombies, and wrote all the business that they could, without any regard to actually having to pay massive claims in the future. For one, they were pricing their product way too low, and thought they could "grow" their way out of trouble, and just throw capital at the problem. The next step was to start pricing new products more in line with the actual risk, and then attempting to keep the existing block pricing intact. And now we are at the point where we either have rate changes on both new and old business, or some carriers exiting the business altogether. Along with the stock market follies of the past ten years, two major events happened that turned the LTC world upside down. 1. Somewhere around 2006, the number one claim for LTC went from stroke (somewhat easy to model for an actuary) to dementia and related illnesses (extremely difficult to model) and 2. The unprecedented rise in health care costs, which by some measures is outpacing inflation by 2-3%. When you factor in the difficulties of the equity market and combine the other 2 issues, it becomes difficult for a company that writes a significant amount of LTC insurance to price their product appropriately. The fact is that MetLife saw what was coming down the road, and didn't want any part of it. There is no way that a stock insurance company is going to be able to stay in this business long term, because at some point the claims are going to start piling up and ratios are going to get thinner, and Wall Street is going to balk. People can harp all they want about how I am wrong, etc etc, but the fact is that the math is not there, and it hasn't been for quite some time.

#1) The increasing cost of medical care has no impact on long-term care insurance. Every LTCi policy has a maximum Daily Benefit which is predictable, to the penny, over the life of the policy. Therefore, increasing costs have no impact on the insurer because the policy does not pay benefits according to what care costs. The policies pay benefits according to what the Daily Benefit has grown to.

#2) There is a very simple reason why Met Life stopped selling new LTCi policies: They were not selling enough policies to justify their NewBusiness/Underwriting/Marketing overhead expenses.

Met Life was one of the top 3 LTC insurers, in terms of sales, for about 10 years. Then, in 2007 they dramatically changed their products. Those changes, coupled with the economic crisis of Fall 2008, caused a sharp decline in their sales. If you've got $10 million in overhead in your NewBusiness/Underwriting/Marketing and you're only issuing $10 million in new premium each year, you're not selling enough policies. You're losing a lot of money by the time you pay first year commissions, overrides,

Everyone is conjecturing that they are losing money on their in-force block and that is why they've stopped selling new policies.

That is incorrect. They are not losing money on their in-force policies. They have stopped selling new LTCi policies because they were not selling enough to justify their overhead expenses.

 

[yankee466]

To go along with Scott's points.........I would agree that, since MetLife changed its pricing model, they no longer had a competitive product to sell. The only time they were competitive was in the age 70+ market with a GPO plan.....but the chances of getting most 70+ year old people through underwriting without some sort of a hiccup were slim and none IMHO.

I used to sell their product, but they really have nothing of value anymore. LifeStage Advantage did not have enough flexibility to be of much value. I liked VIP.

When you have Prudential, Mutual of Omaha, Genworth, Transamerica, American General, Guardian, and many others blowing away MetLife quotes....how is one expected to sell MetLife LTC to start with? I'll assume John Hancock will one day discontinue their 5% compound inflation option...since it is VERY expensive. Why anyone would risk a pig-in-a-poke CPI inflation clause is another interesting question for JH fans. Makes you wonder if they are next in terms of "dropping out". I have to assume their sales are dropping off too. I'll guess GNW/PRU/MoO are taking off.

Maybe we should all just wait for the CLASS act for a backer with real financial stability?

 

[sluggo08]

#1) The increasing cost of medical care has no impact on long-term care insurance. Every LTCi policy has a maximum Daily Benefit which is predictable, to the penny, over the life of the policy. Therefore, increasing costs have no impact on the insurer because the policy does not pay benefits according to what care costs. The policies pay benefits according to what the Daily Benefit has grown to. I am sorry, but I am going to have to disagree with you on this one. You are assuming that carriers priced their product with the idea that when someone went on claim, they would use up the entire daily benefit, every day. When you look at the way LTC care policies were priced with most of the large carriers, they always counted on a significant amount of policies not using their maximum daily benefit while they were on claim. So, if John Q Public was on claim he might only need a certain amount of care to meet his needs, thus not using the whole daily benefit. This assumption was a major error, and did not account for the skyrocketing cost of care.

#2) There is a very simple reason why Met Life stopped selling new LTCi policies: They were not selling enough policies to justify their NewBusiness/Underwriting/Marketing overhead expenses. Nice spin, you should try your luck in Public Relations or in Washington D.C. If you jack up your rates, because you are either worried about the future of the market, or are not confident enough in your actuarial modeling, and then exit the market, you cannot use the excuse that you were not making enough money. You voluntarily priced yourself out of the market, while the corporate hacks decided what to do with the product line (with the advice of our friends on wall street of course.) Since many believe that the LTC market is tapped out, and the amount of policyholders actually went down in 2009, this probably helped Met with the decision as well.

Met Life was one of the top 3 LTC insurers, in terms of sales, for about 10 years. Then, in 2007 they dramatically changed their products. Those changes, coupled with the economic crisis of Fall 2008, caused a sharp decline in their sales. If you've got $10 million in overhead in your NewBusiness/Underwriting/Marketing and you're only issuing $10 million in new premium each year, you're not selling enough policies. You're losing a lot of money by the time you pay first year commissions, overrides,

Everyone is conjecturing that they are losing money on their in-force block and that is why they've stopped selling new policies.

That is incorrect. They are not losing money on their in-force policies. They have stopped selling new LTCi policies because they were not selling enough to justify their overhead expenses.

You cannot go the the state and ask for a rate increase unless you are breaking through a comfortable level of profitability, especially a large one. If you look at the rate increases on existing business in the past couple of years, the big boys like Met, JH, and Genworth, did not want to be the first to raise their rates, even though they probably needed an increase for longer than they let on. Once the first company announced their increase, the floodgates opened up. And I quote, "A MetLife spokeswoman said that the company actually had not anticipated the costs. “While we are sensitive to any rate increase that impacts our policyholders, assumptions used to initially price many long-term care insurance products have changed,” Karen Eldred said in a statement. She added that the company misjudged interest rates, life expectancy and the number of people who would drop their policies." That says it all to me, as a company if you are trying to make a market profit on LTC instead of an underwriting profit, at some point you will lose. Just like many of the "big"players in the LTC market, the product was priced for capital inflow, not to build a solid book of business. People don't like the cash cow anymore when you actually have to start paying claims.

 

[Mr_Ed]

You cannot go the the state and ask for a rate increase unless you are breaking through a comfortable level of profitability, especially a large one. If you look at the rate increases on existing business in the past couple of years, the big boys like Met, JH, and Genworth, did not want to be the first to raise their rates, even though they probably needed an increase for longer than they let on. Once the first company announced their increase, the floodgates opened up. And I quote, "A MetLife spokeswoman said that the company actually had not anticipated the costs. “While we are sensitive to any rate increase that impacts our policyholders, assumptions used to initially price many long-term care insurance products have changed,” Karen Eldred said in a statement. She added that the company misjudged interest rates, life expectancy and the number of people who would drop their policies." That says it all to me, as a company if you are trying to make a market profit on LTC instead of an underwriting profit, at some point you will lose. Just like many of the "big"players in the LTC market, the product was priced for capital inflow, not to build a solid book of business. People don't like the cash cow anymore when you actually have to start paying claims.

Sluggo08,

There are two different issues and you and combining them into one.

Issue#1: Why are they having in-force rate increases? You've answered that very well: lapse rate has been much lower than projected, interest rates have been much lower than projected.

You're implying that they are not going to be paying claims on those policies. They will. They still have over 600,000 policyholders and they are responsible to pay the claims on all those policies.

Issue #2: Why have they stopped selling new policies? You're assuming that they've stopped selling new policies because they are losing money on their in-force policies. They are not losing money on their in-force policies. They are making money, just not as much as they hoped to make. They are not selling new policies because their products are no longer competitive. Their overhead is WAY too high. They can't sell enough to justify the overhead expenses.

There are two separate issues. Don't confuse the two.

 

[russelltw]

my current company quit selling ltc several years ago and came out with a 30%+ rate increase for next year on their existing book. I would say the actuaries (for all companies) did not have realistic data for LTC like they did for life insurance.

 

[Mr_Ed]

Met Life’s decision will have as much impact on the future of LTCi as IBM’s decision to stop selling PC's did on the computer industry. Read more here:

Headline: IBM stops selling computers–future of computer industry in doubt! « LTCShop.com

 

[golfchaos]

Met got out because of future claims in addition to being unable to get a good rate of return on reserves that they were holding to pay future claims.
I also agree that Guardian and MassMutual are good companies to sell LTC with. Cash cows with fantastic financials.

 

[alexkane03]

saw this comming with penn treaty, how ever there is a new company that is well priced and middle of the road issue , pm me for details