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.