Filed Under:Health Insurance, Ltci

Manulife plays the LTCI rate game

Executives at Manulife Financial Corp. (NYSE:MFC) say they think the benefits of staying in the private long-term care insurance (LTCI) market outweigh the benefits of getting out.

The executives talked about their LTCI pricing and sales strategy recently during the company's third-quarter earnings call.

The company has emphasized over the past few years that LTCI sales at the company's John Hancock unit are "not targeted for growth."

The company conducted a review of its LTCI business, decided to take a $12 million charge to account for adjustments to mortality and morbidity and assumptions, and to start the process of asking for a new round of rate increases based on the results of the review. The average increase in the new round would be about 25 percent, up from an average of about 40 percent for increases filed in 2010.

But the company let Hancock LTCI sales increase to $15 million in the third quarter, up 15 percent from the total recorded a year earlier. 

Laura Bazer, a senior credit officer at Moody's Investors Service, said in a commentary that Moody's views the Hancock unit's need to seek a new round of increases as being credit negative.

"Regulators may balk," Bazer wrote. "In addition, more policyholders, particularly healthier ones, may reject the higher rates, lapsing their policies."

During the earnings call, one analyst asked why Manulife bothers to stay in the LTCI market.

Donald Guloien, Manulife's president, said getting out of the market would do nothing to reduce the risk the Hancock unit faces from its large block of in-force LTCI business.

The company is writing only a small amount of new LTCI business, but "the products we are selling now have a very, very handsome margin built in, even for profit," Guloien said. "If anything is going to be profitable, it's the new business we are writing."

Moreover, staying in the LTCI business helps Hancock negotiate for rate increases, Guloien said.

"The ultimate threat for regulators is that, if everybody pulls out of the business because they can't get rate increases, there will be no long-term care insurance available to consumers," Guloien said.

Meanwhile, even though Manulife hedges some exposure to interest rates, it has kept enough exposure that it could see a big increase in profits if rates rise even half a percentage point, Guloien said. 

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