There's a risk
advisers could see quality of care suffer for their clients in these sorts of
deals
Private-equity
investors are eyeing insurers' long-term-care business with increasing fervor,
according to insurance executives and analysts, which could present problems
for financial advisers whose clients hold affected policies.
"A lot of
private-equity firms are looking at it quite actively," said Naveed
Irshad, head of North American legacy businesses at Manulife Financial Corp.,
during the insurer's recent third-quarter earnings call. "So it's
certainly an avenue we're exploring," he added.
Manulife owns John
Hancock, which stopped selling new individual
long-term-care insurance policies last year and is among
the largest underwriters of traditional long-term-care policies, covering about
1 million individuals, according to the most recent data from the American
Association for Long-Term Care Insurance.
Suneet Kamath, an
analyst at Citigroup Global Markets Inc., alluded to a similar trend
during Prudential Financial Inc.'s
third-quarter earnings presentation, saying he'd "heard on different calls
that private equity is kind of sniffing around long-term care."
Prudential chief
financial officer Robert Michael Falzon, responding to a question from Mr.
Kamath as to investors' interest in Prudential's business, said the firm
consistently evaluates those opportunities and "long-term care would be
included in that evaluation." Prudential underwrites more than 200,000
long-term-care policies.
A long-term-care
transaction could take any number of forms. For example, a private-equity
investor could buy a block of long-term-care policies outright and take over
servicing of them, or assume the payment of claims while the insurer continues
to service the policy.
The biggest risk
for advisers and consumers in a deal involving private equity would be the
ongoing quality of care — for example, claim servicing could be worse in the
future depending on how the policies are sold off and who's servicing them,
Jamie Hopkins, an insurance expert with The American College of Financial
Services, said.
Apart from that,
the private-equity firm would be governed by the same insurance rules that
apply to the existing policy underwriter, so Mr. Hopkins doesn't envision much
additional risk for stakeholders. Any premium increases would still need to be
approved by the state insurance regulators.
There have been
a handful of big deals between
private-equity investors and insurers announced within the
past year. Voya Financial Inc., for example, sold off more than $50 billion
worth of annuities to three private-equity firms. That business is housed
within a company called Venerable Holdings Inc. The Hartford Financial Services Group sold
off roughly $48 billion of annuity contracts to a group of six investors.
Moody's Investors
Services said in a recent research note that it expects the trend of life
insurers selling off legacy blocks of business to continue in 2019, given
favorable economic conditions such as rising interest rates and a sizable inventory of legacy
businesses.
Many insurers have had
to make large infusions of cash toward
long-term-care reserves as they've revised some of their underlying actuarial
assumptions. Prudential, for example, took a $1.5 billion pre-tax charge on its
legacy LTC business in the second quarter. That's on top of $700 million the
company added to its LTC reserves in 2012.
Sales of
standalone, traditional LTC insurance have also fallen off severely. The
industry sold fewer than 70,000 policies last year, a tenth of the number it
sold about two decades ago.
"There will be
some good deals in that area because there are people that just want to get out
of it," said Mr. Hopkins.
And there's an
"abundance of alternative capital" that will support more deals,
Moody's said.
No comments:
Post a Comment