Genworth Financial Inc. is delaying the launch of its new long-term care business as it looks to restructure a reinsurance arrangement in order to obtain a competitive financial rating, CEO Tom McInerney told S&P Global Market Intelligence.
In McInerney's view, Genworth's new long-term care, or LTC, business would need to obtain an A.M. Best financial strength rating of A- or better to be successful in selling its new product and keep in line with competitors.
Genworth has been working with an A+ rated reinsurer and A.M. Best for months and agreed to put more capital into the business than McInerney believed was necessary. However, that was not enough to get the desired rating, and McInerney could not predict how long it might take to achieve that rating.
A spokesperson for Genworth said the situation is not "final" and said the insurer is continuing to work with A.M. Best to "figure out the right mix of capitalization and reinsurance support" to get the company to a competitive rating. A.M. Best did not respond to a request for comment.
McInerney originally anticipated that the new business would launch in the second half of this year. Instead, Genworth will focus more on its advisory services for long-term care, a shift that the CEO signaled during a first-quarter earnings call.
Revolution postponed
Genworth touted the new long-term care business as a reimagination of the way the industry has handled the troubled business line. The company previously said it plans to cap maximum payouts for claims at about $250,000 and will only sell in states where regulators will allow for an opportunity to annually reprice policies.
Former Maine insurance Superintendent Eric Cioppa told S&P Global Market Intelligence in an interview that he was not supportive of Genworth's plan as it does not solve the "product problem."
"It just allows the insurer to raise rates every year so they do not find themselves in a position where they are asking for a 100% rate increase at some point, but we still get there over time," Cioppa said.
In a conversation with S&P Global, McInerney said Cioppa's perspective was "wrong" and that Genworth's policies in the planned new business will use "good, conservative assumptions" that could potentially hold for 30 years.
He also continued to press the case for annual reviews and possible recalibrations. Insurers should be able to show regulators their pricing assumptions and what is happening in the market each year, McInerney said. If the pricing is in line, no change would be necessary. But if there is a disconnect, insurers must be allowed to ask for changes, the Genworth executive said.
"What happened over the last 40 years, that's not how insurers and regulators ran the business," McInerney said. "We waited way too long."
No consensus on regulation
CreditSights analyst Josh Esterov said opinions are clearly diverging on how LTC regulation should evolve.
"From Genworth's perspective, a robust LTC market requires an understanding and an expectation from regulators and policyholders that premium rates need to be flexible in order to improve the likelihood of insurers maintaining adequate profitability," Esterov said.
But making sure insurers remain profitable is not the mandate of state regulators, he noted. "Their job is to protect policyholders, not protect an insurer's bottom line," Esterov said.
Regulators generally seem supportive of insurers' efforts to try to address the needs of an aging population, according to Esterov, but there are many who believe insurers must be more careful when pricing their products from the start.
"There isn't necessarily a 'correct answer' as to how the LTC market and regulatory framework should evolve," Esterov said. "But I think it is fair to say that under the current framework, the vast majority of insurers are disinterested in offering LTC insurance products."
If they come to fruition, new sales within a revamped LTC business would mark a new chapter for Genworth, which has struggled to generate new premiums within its life division since 2016, when it suspended new sales of its life and fixed annuity products. New sales were further depressed in 2019 when the company suspended individual LTC sales within the brokerage general agency channel.
A review of 2021