The Connecticut Insurance Department has rejected efforts by Mutual of Omaha Insurance Company and an affiliate, United of Omaha Life Insurance Company, to increase rates on some individual long-term care insurance (LTCI) policies already in force.
The 18.7% increase would have affected 282 fully underwritten policies sold to Connecticut residents from 2004 through 2009 to adults ages 18 through 79.
The 19.8% increase would have affected 18 fully underwritten United of Omaha policies sold to Connecticut residents from 2006 through 2009 to adults ages 18 through 79.
In April, the Connecticut department rejected efforts by Mutual of Omaha to increase rates on 337 Connecticut LTCI policies by an average of about 33%.
Earlier this month, Mutual of Omaha said it was responding by low interest rates, lower-than-expected LTCI lapse rates and higher-than-expected claims by suspending the sale of new multi-life LTCI programs and eliminating some individual LTCI policy features and options.
Mutual of Omaha cited studies in which actuaries had concluded that LTCI lapse rates will be lower than expected and claims higher over the life of the policies.
The company says the type of policies affected by the 18.7% rate increase request has an actual lapse rate for policies with a duration of 5 years of 2%. When the company wrote the policies, actuaries assumed the 5-year-duration lapse rate would be 3%.
For the United of Omaha policies, the original 5-year lapse rate assumption was 2.4% and the actual 5-year lapse rate has been 2%, the company says.
So far, however, the ratio of claims to revenue for the United of Omaha forms is just 2% on a national basis, and no claims at all have been filed in Connecticut, Paul Lombardo, a Connecticut department actuary, writes in a letter explaining the department's decision to reject the increase request.
"The Connecticut experience is well below what was expected while nationwide data is also significantly below what was expected, with an actual-to-expected ratio of 0.64," Lombardo says.
Connecticut law requires an LTCI company to have a ratio of claims to revenue of at least 60% over the life of the policy forms, Lombardo says.
"Any increase at this time would be considered excessive," Lombardo says.
The inception-to-date loss ratio for the Mutual of Omaha LTCI policies is 0.01% in Connecticut, and the ratio is 4.62% nationally, Lombardo says.
The national claims rate is 11% higher than expected, but the Connecticut claims rate is well below what was expected, Lombardo says.
Mutual of Omaha representatives say the company is seeking regulatory approval for the LTCI rate increases because recent experience indicates premiums on some of the policies are inadequate to fund future benefits.
"This is confirmed by industry trends," the company says. "The proposed increases are necessary to ensure Mutual of Omaha can meet future obligations to policyholders. Rate increases are being filed nationally; however, the actual amount of the increases are subject to state approval."
About 18% of the policyholders with affected products will receive no increase, the company says.
Paid-up policies will be not be affected, and policyholders can take several steps, such as reducing the benefit amount or changing the inflation protection option, to avoid an increase in premium payments, the company says.