Orlando, Fla.
A motion to advance rate guidance for long-term care business that is deemed ‘moderately adverse’ was advanced so that regulators at the National Association of Insurance Commissioners, Kansas City, Mo., could consider whether changes need to be made to existing LTC regulation.
The motion which passed unanimously after considerable discussion among states defines 'moderately adverse' as being 20 percent of the experience of both the present value of lifetime claims experience and the present value of future lifetime claimes experience.
The vote took place during the October 17 meeting of the Accident & Health working group at the NAIC fall meeting here. It will be considered later today by the Long-Term Care (EX) Task Force.
The discussion among regulators and actuaries underscored the delicate balance of establishing rates that are neither too low nor too high.
Minnesota regulator Julia Philips said that a number of companies she has worked with came up with their own definition of ‘moderately adverse’ experience in the 10 percent range so that the 20 percent rate in the motion would be much higher. She noted that if consumers pay a higher rate and there are fewer increases later that would be a good thing but that if claims experience improves, then they would be paying too much.
Alabama regulator Steve Ostlund, chair of the A&H working group, said that by setting the rate at 20 percent, companies are receiving profit if the moderately adverse claims experience does not materialize.
Florida regulator Dan Keating said that while he did not know if 20 percent was the right rate, he did know that 5-10 percent increases for most companies is too low. Everyone who bought these policies is paying more than 20 percent of what they paid initially were charged for them, he noted.
The motion and the discussion in general reflect the struggle regulators have had with defining ‘moderately adverse’ and putting a number to it, said John Rink, a Nebraska regulator. “Is 20 percent correct? I don’t know but it mirrors the struggle we have had in trying to determine what it is. My feeling is that it may continue to be a struggle.”
California regulator Perry Kupferman said that companies are breaking through the 10 percent rate very quickly.
Bill Weller, representing America’s Health Insurance Plans, Washington, said that while initially a company’s future morbidity claims experience compared with current morbidity may not be 20 percent, if a company waits four to five years until it reaches 20 percent, rate increases will actually be higher. But, he continued, if the increase is allowed sooner, rate increases are likely to be lower.
Bonnie Burns, an NAIC funded consumer representative, said that regulators need to consider “real world effects to consumers.” She offered an example in which a person aged 60 buying a $100 a day tax qualified long-term care insurance contract with a 30-day waiting period could pay a range of premium ranging from $1,123 to $5,548 a year. “That’s an astonishing range for similar benefits,” she said. If that same person was looking for a lifetime policy with the same benefits, the rates range from $962 to $9,725 a year, she added. A lifetime policy is less than the three-year policy of $1,123, she added. The NAIC needs to look at this issue and find out why rates are so diverse, Burns asserted.
California’s Kupferman suggested that Burns read policies for differences, check underwriting standards and check for any differences in contract administration. Burns said that even so, there is still a huge disparity and added that consumers buy long-term care insurance based on price and are not going to look at claims administration or what policy says. She asked what administering a claim means to a consumer.
“The NAIC needs pay attention to fact that there may be companies building in rate increases at the front end through this moderately adverse standard,” Burns cautioned.
Sunday, October 17, 2010
LHATF Actuaries Want To Weigh In on IASB Proposal
Orlando
Actuaries are discussing how to weigh in on international accounting standards that some insurers say will have a significant impact on the way business in the United States is done.
During the fall meeting of the National Association of Insurance Commissioners, Kansas City, Mo., actuaries were cautioned that changes proposed by the International Accounting Standards Board, London, could limit products available to consumers.
South Carolina regulator Leslie Jones asked why regulators need to be concerned about this proposed standard and what effect it will have effect it will have on the United States market.
By using a risk-free rate in discounting, valuation conditions will be created that could limit insurers’ desire to offer long-term products in the United States, according to Ed Stephenson of Barnert Global, representing the Group of North American Insurance Enterprises, New York. Stephenson warned that the same thing has happened in other jurisdictions.
Stephenson said that there is still a lot of work that needs to be done in this area before the IASB advances this concept. He noted that creating one model doesn’t adequately capture the nuances of both the life insurance and property-casualty industries. He also noted that reinsurance in general is not well understood in project. Rather, he continued, it creates potential arbitrage by which reinsurers would recognize upfront profits but ceding companies would not.
Another concern Stephenson cited was the potential to require unbundling of insurance contracts for accounting purposes, a proposed standard which he says is unclear. It is not certain how it will affect universal life products, he added. In fact, Stephenson continued, many of the ideas are new and untested and need far more study to determine the potential effects on insurance industry.
South Carolina’s Jones and Larry Bruning, a Kansas regulator and LHATF chair, said that it is important to weigh in on these issues and that regulators need to have a group of regulators to follow what is going on and to get up to speed so that they can comment on the proposal before the December deadline. Donna Claire, representing the American Academy of Actuaries, Washington, said that the Academy has been following these issues and could provide assistance to any group that is formed.
Other regulators including Tomasz Serbinowski of Utah and Richard Marcks of Connecticut said that it would be difficult to provide insight on the issue because the issue is complex and would require a significant commitment of time to understand. Other LHATF members said that is exactly why a small group of two to three LHATF regulators is needed to track the issue.
Actuaries are discussing how to weigh in on international accounting standards that some insurers say will have a significant impact on the way business in the United States is done.
During the fall meeting of the National Association of Insurance Commissioners, Kansas City, Mo., actuaries were cautioned that changes proposed by the International Accounting Standards Board, London, could limit products available to consumers.
South Carolina regulator Leslie Jones asked why regulators need to be concerned about this proposed standard and what effect it will have effect it will have on the United States market.
By using a risk-free rate in discounting, valuation conditions will be created that could limit insurers’ desire to offer long-term products in the United States, according to Ed Stephenson of Barnert Global, representing the Group of North American Insurance Enterprises, New York. Stephenson warned that the same thing has happened in other jurisdictions.
Stephenson said that there is still a lot of work that needs to be done in this area before the IASB advances this concept. He noted that creating one model doesn’t adequately capture the nuances of both the life insurance and property-casualty industries. He also noted that reinsurance in general is not well understood in project. Rather, he continued, it creates potential arbitrage by which reinsurers would recognize upfront profits but ceding companies would not.
Another concern Stephenson cited was the potential to require unbundling of insurance contracts for accounting purposes, a proposed standard which he says is unclear. It is not certain how it will affect universal life products, he added. In fact, Stephenson continued, many of the ideas are new and untested and need far more study to determine the potential effects on insurance industry.
South Carolina’s Jones and Larry Bruning, a Kansas regulator and LHATF chair, said that it is important to weigh in on these issues and that regulators need to have a group of regulators to follow what is going on and to get up to speed so that they can comment on the proposal before the December deadline. Donna Claire, representing the American Academy of Actuaries, Washington, said that the Academy has been following these issues and could provide assistance to any group that is formed.
Other regulators including Tomasz Serbinowski of Utah and Richard Marcks of Connecticut said that it would be difficult to provide insight on the issue because the issue is complex and would require a significant commitment of time to understand. Other LHATF members said that is exactly why a small group of two to three LHATF regulators is needed to track the issue.
Thursday, October 14, 2010
Commissioners Ready Response to HHS on Medical Loss Ratios
State regulators are about to forward recommendations to the U.S. Department of Health and Human Services about how to treat medical loss ratios (MLRs).
MLRs are the minimum amount of premium per dollar that must be paid out in claims by health carriers. Under the new Patient Protection and Affordable Care Act (PPACA), the minimum MLR is 80 percent or 80 cents on the dollar. If carriers do not meet this minimum, they must rebate premium to those enrolled in their plans.
How medical loss ratios are constructed is important, a number of insurance commissioners say, because without at least a phase-in in 2011, 2012 and 2013, carriers may decide to withdraw from their states. A number of carriers are already raising the issue with their insurance departments, according to comments from NAIC leadership made a few weeks ago after a meeting with President Barack Obama and HHS Secretary Kathleen Sebelius.
State insurance commissioners put final touches on proposed recommendations that will be put to a final vote at the fall meeting of the National Association of Insurance Commissioners, Kansas City, Mo., when it meets in Orlando this coming week.
The Health Insurance and Managed Care “B” Committee discussed and adopted work developed by the NAIC’s Life & Health Actuarial Task Force that would allow for rebates to be calculated into the medical loss ratio during the transition period.
The discussion then turned to the issue of credibility and how a 50 percent requirement could have a negative impact on small groups. Addressing credibility could offer smaller health groups relief and remove some of the urgency to consider national aggregation, Kansas Insurance Commissinoner Sandy Praeger and "B" Committee chair commented. One way to reduce the strain on small groups would be to start with an 80 percent credibility requirement and phase it back to 50 percent, she said. Another option would be to leave it at 80 percent.
A decision was made to hold the issue and discuss it at the NAIC executive committee/plenary session in Orlando when the committee is supposed to have data provided by Milliman, actuarial consultants, to make a more informed decision.
Oklahoma Insurance Commissioner Kim Holland, NAIC Secretary-Treasurer, said that it is imperative that some relief be provided to carriers so that they remain solvent and remain in the states. New York regulator Lou Felice remarked that while he understands that concern, it is important that regulators “keep their eye on the ball,” namely to retain access to health insurers for states’ residents. If carriers are given too much latitude on MLRs, there will be less aggressive pricing and less access to insurance, he explained. Felice added that there will be a big transformation in 2014 when new requirements become effective and wondered whether the outcome will just be delayed: states will lose carriers in 2014 rather than in 2011 if they are given latitude now.
Connecticut Insurance Commissioner Tom Sullivan asked Felice whether the large group market is broken. Felice responded that “pricing is more aggressive in New York large groups which are in the 80s already. They can meet [MLRs] on a state and national basis.”
Kansas’ Praeger said that she fully understood that rebates should be an occasional and not a regular occurrence. In response to a question from Illinois Insurance Director Michael McRaith, Praeger said that there could be a reconsideration of decisions recommended by the NAIC at a later point if needed. She emphasized that regulators need to do everything that they can to minimize market disruptions.
On the issue of credibility, the adjustment to account for random statistical fluctuations in claims experience for smaller plans, there was discussion on an 80 percent permanent rate or phase back to 50 percent. It was noted that the American Academy of Actuaries, Washington, illustrated a 90 percent permanent rate to minimize market disruption.
However, it is not endorsing it, according to Academy spokesperson Andrew Simonelli. In fact, the Academy's Medical Loss Ratio Regulation work group has recently focused on an 80 percent level. It has identified flaws in the 50 percent rate, he continued. And, he added, the work group has said that, “Increasing the magnitude of the credibility adjustments may help keep insurance markets attractive to smaller competitors, which would enhance consumer choice.”
Tim Yost, a consumer advocate, agreed that the goal is not to pay rebates and suggested that the 80 percent credibility requirement could be used for the smallest groups which are most likely to face challenges.
Barbara Yondorf, another consumer advocate and a former Colorado insurance regulator, said that health plans in her state were very concerned with aggregation and believed that health care should be addressed as a local issue.
MLRs are the minimum amount of premium per dollar that must be paid out in claims by health carriers. Under the new Patient Protection and Affordable Care Act (PPACA), the minimum MLR is 80 percent or 80 cents on the dollar. If carriers do not meet this minimum, they must rebate premium to those enrolled in their plans.
How medical loss ratios are constructed is important, a number of insurance commissioners say, because without at least a phase-in in 2011, 2012 and 2013, carriers may decide to withdraw from their states. A number of carriers are already raising the issue with their insurance departments, according to comments from NAIC leadership made a few weeks ago after a meeting with President Barack Obama and HHS Secretary Kathleen Sebelius.
State insurance commissioners put final touches on proposed recommendations that will be put to a final vote at the fall meeting of the National Association of Insurance Commissioners, Kansas City, Mo., when it meets in Orlando this coming week.
The Health Insurance and Managed Care “B” Committee discussed and adopted work developed by the NAIC’s Life & Health Actuarial Task Force that would allow for rebates to be calculated into the medical loss ratio during the transition period.
The discussion then turned to the issue of credibility and how a 50 percent requirement could have a negative impact on small groups. Addressing credibility could offer smaller health groups relief and remove some of the urgency to consider national aggregation, Kansas Insurance Commissinoner Sandy Praeger and "B" Committee chair commented. One way to reduce the strain on small groups would be to start with an 80 percent credibility requirement and phase it back to 50 percent, she said. Another option would be to leave it at 80 percent.
A decision was made to hold the issue and discuss it at the NAIC executive committee/plenary session in Orlando when the committee is supposed to have data provided by Milliman, actuarial consultants, to make a more informed decision.
Oklahoma Insurance Commissioner Kim Holland, NAIC Secretary-Treasurer, said that it is imperative that some relief be provided to carriers so that they remain solvent and remain in the states. New York regulator Lou Felice remarked that while he understands that concern, it is important that regulators “keep their eye on the ball,” namely to retain access to health insurers for states’ residents. If carriers are given too much latitude on MLRs, there will be less aggressive pricing and less access to insurance, he explained. Felice added that there will be a big transformation in 2014 when new requirements become effective and wondered whether the outcome will just be delayed: states will lose carriers in 2014 rather than in 2011 if they are given latitude now.
Connecticut Insurance Commissioner Tom Sullivan asked Felice whether the large group market is broken. Felice responded that “pricing is more aggressive in New York large groups which are in the 80s already. They can meet [MLRs] on a state and national basis.”
Kansas’ Praeger said that she fully understood that rebates should be an occasional and not a regular occurrence. In response to a question from Illinois Insurance Director Michael McRaith, Praeger said that there could be a reconsideration of decisions recommended by the NAIC at a later point if needed. She emphasized that regulators need to do everything that they can to minimize market disruptions.
On the issue of credibility, the adjustment to account for random statistical fluctuations in claims experience for smaller plans, there was discussion on an 80 percent permanent rate or phase back to 50 percent. It was noted that the American Academy of Actuaries, Washington, illustrated a 90 percent permanent rate to minimize market disruption.
However, it is not endorsing it, according to Academy spokesperson Andrew Simonelli. In fact, the Academy's Medical Loss Ratio Regulation work group has recently focused on an 80 percent level. It has identified flaws in the 50 percent rate, he continued. And, he added, the work group has said that, “Increasing the magnitude of the credibility adjustments may help keep insurance markets attractive to smaller competitors, which would enhance consumer choice.”
Tim Yost, a consumer advocate, agreed that the goal is not to pay rebates and suggested that the 80 percent credibility requirement could be used for the smallest groups which are most likely to face challenges.
Barbara Yondorf, another consumer advocate and a former Colorado insurance regulator, said that health plans in her state were very concerned with aggregation and believed that health care should be addressed as a local issue.
Wednesday, October 13, 2010
Is It Soup Yet? Opinion Divided Over Annuity Disclosure Work
Proposed annuity disclosure requirements are about to be advanced by state insurance regulators after over two years of work. But insurers and actuaries are raising concerns over whether the work is ready.
During the fall meeting of the National Association of Insurance Commissioners, Kansas City, Mo., next week, a draft of the annuity disclosure model regulation will be moved from the working group to its parent “A” committee as required by the group’s charge.
But the project, which has been under discussion for over two years and has had numerous drafts exposed for public comment, is receiving kick back from the American Council of Life Insurers, the American Academy of Actuaries, and the Insured Retirement Institute, all based in Washington.
At the end of the most recent discussion today, Kelly Ireland, an ACLI representative, asked whether broad support to hold the draft for a short time period might be given consideration. Jim Mumford, chair of the working group and Iowa’s first deputy insurance commissioner, said that a draft needed to be advanced. He suggested that interested parties who want to hold the draft for more discussion should take it up with the NAIC’s “A” Committee. He said that if the “A” Committee does decide to hold up the model, it should look at take a few specific points of concern and examine them rather then re-exposing the whole model since it had been through a number of exposures already. However, Alabama regulator Steve Ostlund said that the draft should be re-exposed because the latest draft with a number of changes is expected to be released on October 14 less than a week before a vote.
The differences in approach in crafting the model were illustrated during a discussion on use of a current rate to illustrate fixed indexed annuities. For instance, Utah insurance regulator Tomasz Serbinowski maintained that seven to 10 years would be a good time period to illustrate favorable and unfavorable performance in an indexed product so that the product could be understood by consumers. The discussion continued about whether there was value in illustrating for up to 30 years and whether that extended illustration better identifies how the index works over time.
Lee Covington, representing the IRI, said that showing the guaranteed rate for a prolonged period of time puts the product in a better light. But Iowa’s Mumford pointed out that the 30-year time period was taken from life insurance illustrations and that consumers keep life insurance products longer than they keep annuity products. Covington responded that most financial planners are creating retirement plans that span to age 90-95 for clients and that more long-term planning is now more important with new fiduciary standards. He argued that a shorter illustration would put insurers at a competitive disadvantage with other sectors of the financial services market.
Barbara Lautzenheiser of Lautzenheiser Associates, Hartford, Conn., said that using both current and long-term guarantees as well as high and low scenarios in an illustration provides the consumer with a better understanding of where she is and where she needs to go.
Mumford asked if a reasonable cap of 8 percent for current interest rates in illustrations could be established. The ACLI’s Ireland responded that the ACLI had offered a solution which would feature a high and low scenario and a cap of 6 percent for fixed annuities. Mumford said that he would take a look at it.
Kim O’Brien, representing the National Association for Fixed Annuities, Milwaukee, said that financial planning organizations such as the Financial Planning Association, Denver, did not have specific standards for the number of years a financial plan should encompass. IRI’s Covington followed up by saying that a limit of 15 years could conceivably prevent a company from illustrating annuitization values, the cash streams created by turning a lump sum value in the annuity to regular income. He said, for example, that if the annuity was purchased at age 50, then the consumer could not see the annuitization value at age 70.
During the fall meeting of the National Association of Insurance Commissioners, Kansas City, Mo., next week, a draft of the annuity disclosure model regulation will be moved from the working group to its parent “A” committee as required by the group’s charge.
But the project, which has been under discussion for over two years and has had numerous drafts exposed for public comment, is receiving kick back from the American Council of Life Insurers, the American Academy of Actuaries, and the Insured Retirement Institute, all based in Washington.
At the end of the most recent discussion today, Kelly Ireland, an ACLI representative, asked whether broad support to hold the draft for a short time period might be given consideration. Jim Mumford, chair of the working group and Iowa’s first deputy insurance commissioner, said that a draft needed to be advanced. He suggested that interested parties who want to hold the draft for more discussion should take it up with the NAIC’s “A” Committee. He said that if the “A” Committee does decide to hold up the model, it should look at take a few specific points of concern and examine them rather then re-exposing the whole model since it had been through a number of exposures already. However, Alabama regulator Steve Ostlund said that the draft should be re-exposed because the latest draft with a number of changes is expected to be released on October 14 less than a week before a vote.
The differences in approach in crafting the model were illustrated during a discussion on use of a current rate to illustrate fixed indexed annuities. For instance, Utah insurance regulator Tomasz Serbinowski maintained that seven to 10 years would be a good time period to illustrate favorable and unfavorable performance in an indexed product so that the product could be understood by consumers. The discussion continued about whether there was value in illustrating for up to 30 years and whether that extended illustration better identifies how the index works over time.
Lee Covington, representing the IRI, said that showing the guaranteed rate for a prolonged period of time puts the product in a better light. But Iowa’s Mumford pointed out that the 30-year time period was taken from life insurance illustrations and that consumers keep life insurance products longer than they keep annuity products. Covington responded that most financial planners are creating retirement plans that span to age 90-95 for clients and that more long-term planning is now more important with new fiduciary standards. He argued that a shorter illustration would put insurers at a competitive disadvantage with other sectors of the financial services market.
Barbara Lautzenheiser of Lautzenheiser Associates, Hartford, Conn., said that using both current and long-term guarantees as well as high and low scenarios in an illustration provides the consumer with a better understanding of where she is and where she needs to go.
Mumford asked if a reasonable cap of 8 percent for current interest rates in illustrations could be established. The ACLI’s Ireland responded that the ACLI had offered a solution which would feature a high and low scenario and a cap of 6 percent for fixed annuities. Mumford said that he would take a look at it.
Kim O’Brien, representing the National Association for Fixed Annuities, Milwaukee, said that financial planning organizations such as the Financial Planning Association, Denver, did not have specific standards for the number of years a financial plan should encompass. IRI’s Covington followed up by saying that a limit of 15 years could conceivably prevent a company from illustrating annuitization values, the cash streams created by turning a lump sum value in the annuity to regular income. He said, for example, that if the annuity was purchased at age 50, then the consumer could not see the annuitization value at age 70.
Tuesday, October 12, 2010
IASB, EU Weigh in on Issues Affecting Insurers
European regulatory and judicial bodies are weighing in on issues that will impact insurers’ accounting requirements as well as the use of gender to determine premium rates.
Next week, the International Accounting Standards Board, London, will hold a board meeting during which it will discuss post-employment benefits including an exposure draft on defined benefit plans, recognition of changes in the defined benefit liability or asset as well as the disaggregation of changes in the defined benefit liability or asset.
Immediately following the IASB board meeting, will be a joint meeting of IASB and the Financial Accounting Standards Board, Norwalk, Conn. The fair value of a reporting entity’s own equity instruments will be discussed.
The decisions of the IASB and FASB as these bodies attempt converge international accounting standards over the next two years will have a major impact on insurers’ competitiveness and how they conduct address issues such as volatility, insurers say.
That competitiveness could be further challenged if the European Union moves to outlaw gender as an insurance risk factor. The October 11 issue of Moody’s Weekly Credit Outlook says that the opinion issued on September 30 by the Advocate General of the European Court of Justice would be a ‘credit negative’ for insurers. The opinion, according to the Moody’s piece by Blake Foster states that “such discrimination should be illegal.” However, according to Moody’s, the opinion would address the issue prospectively and use a three-year phase-in period.
Moody’s points out that the opinion is not legally binding but is often used by the Court. It says that it would regard such use as a ‘credit negative’ because it would take away a valuable pricing tool.
Next week, the International Accounting Standards Board, London, will hold a board meeting during which it will discuss post-employment benefits including an exposure draft on defined benefit plans, recognition of changes in the defined benefit liability or asset as well as the disaggregation of changes in the defined benefit liability or asset.
Immediately following the IASB board meeting, will be a joint meeting of IASB and the Financial Accounting Standards Board, Norwalk, Conn. The fair value of a reporting entity’s own equity instruments will be discussed.
The decisions of the IASB and FASB as these bodies attempt converge international accounting standards over the next two years will have a major impact on insurers’ competitiveness and how they conduct address issues such as volatility, insurers say.
That competitiveness could be further challenged if the European Union moves to outlaw gender as an insurance risk factor. The October 11 issue of Moody’s Weekly Credit Outlook says that the opinion issued on September 30 by the Advocate General of the European Court of Justice would be a ‘credit negative’ for insurers. The opinion, according to the Moody’s piece by Blake Foster states that “such discrimination should be illegal.” However, according to Moody’s, the opinion would address the issue prospectively and use a three-year phase-in period.
Moody’s points out that the opinion is not legally binding but is often used by the Court. It says that it would regard such use as a ‘credit negative’ because it would take away a valuable pricing tool.
Wednesday, October 6, 2010
Life Industry Showing Signs of Life, Guardian Panel Says
New York
After a dark year and a half, the life insurance industry is financially stronger with sales showing signs of an upswing, according to a panel brought together by Guardian Life Insurance Co. of America, New York, detailed.
The panel included remarks offered by Robert Broatch, executive vice president and chief financial officer of New York-based Guardian Life; Joel Levine, the life insurance team leader and senior vice president with Moody’s Investors Service, New York; and, Michael Ferik, senior vice president, individual life with Guardian.
Levine says that life insurers’ fundamentals improved enough to upgrade the industry to ‘stable’ in May of this year from a ‘negative’ outlook that had been put in place in September 2008. But the impact of the crisis has shifted the ratings distribution of 53 groups to ‘A’ from ‘AA’, he noted. Even so, life insurers are replenishing their balance sheets, he added.
Levine discussed how some stock companies depending on independent producers shifted to products such as variable annuities with living benefits and universal life contracts with secondary guaranties. These products increased companies’ risk, he said. While pricing has been changed, there is still legacy business creating risk and creating volatility.
Companies’ levels of capital are at a historic high, he continued, with the average risk-based capital in the Moody’s universe at 450 percent, an ‘AAA’ level. And, he added, capital formation continues to improve. However, there will be more volatility associated with capital, Levine continued.
Guardian’s Broatch said the company decided to maintain an ‘AA’ rating in order to have both a strong rating and increased financial flexibility. Later, during a question and answer period, Broatch said that the company’s investment team sees an opportunity to take advantage of good prices and add commercial real estate investments to its investment portfolio. He noted that the focus was on commercial and not on residential real estate and said that currently, there are virtually no subprime investment holdings in the company’s investment portfolio. He added that Guardian does its own research on potential opportunities.
The improvement detailed by Levine was supplemented by a Guardian study which indicated that those under 40 were more likely to take actions to prepare for the purchase of life insurance. For instance, the under 40 age group had a 10 percent better response rate than the 40+ group when asked whether they spent a lot of time considering the purchase of whole life (43% to 33%.) Guardian’s Ferik said. The responses of participants in the survey suggest that the younger group is more concerned about stability and guaranteeing protection, he added. Ninety-four percent of the under 40 participants said that they would do everything possible to be financially secure compared with 76 percent for the older group. Seventy-six percent of the younger group emphasized the importance of being debt free compared with 63 percent for the 40+ group.
After a dark year and a half, the life insurance industry is financially stronger with sales showing signs of an upswing, according to a panel brought together by Guardian Life Insurance Co. of America, New York, detailed.
The panel included remarks offered by Robert Broatch, executive vice president and chief financial officer of New York-based Guardian Life; Joel Levine, the life insurance team leader and senior vice president with Moody’s Investors Service, New York; and, Michael Ferik, senior vice president, individual life with Guardian.
Levine says that life insurers’ fundamentals improved enough to upgrade the industry to ‘stable’ in May of this year from a ‘negative’ outlook that had been put in place in September 2008. But the impact of the crisis has shifted the ratings distribution of 53 groups to ‘A’ from ‘AA’, he noted. Even so, life insurers are replenishing their balance sheets, he added.
Levine discussed how some stock companies depending on independent producers shifted to products such as variable annuities with living benefits and universal life contracts with secondary guaranties. These products increased companies’ risk, he said. While pricing has been changed, there is still legacy business creating risk and creating volatility.
Companies’ levels of capital are at a historic high, he continued, with the average risk-based capital in the Moody’s universe at 450 percent, an ‘AAA’ level. And, he added, capital formation continues to improve. However, there will be more volatility associated with capital, Levine continued.
Guardian’s Broatch said the company decided to maintain an ‘AA’ rating in order to have both a strong rating and increased financial flexibility. Later, during a question and answer period, Broatch said that the company’s investment team sees an opportunity to take advantage of good prices and add commercial real estate investments to its investment portfolio. He noted that the focus was on commercial and not on residential real estate and said that currently, there are virtually no subprime investment holdings in the company’s investment portfolio. He added that Guardian does its own research on potential opportunities.
The improvement detailed by Levine was supplemented by a Guardian study which indicated that those under 40 were more likely to take actions to prepare for the purchase of life insurance. For instance, the under 40 age group had a 10 percent better response rate than the 40+ group when asked whether they spent a lot of time considering the purchase of whole life (43% to 33%.) Guardian’s Ferik said. The responses of participants in the survey suggest that the younger group is more concerned about stability and guaranteeing protection, he added. Ninety-four percent of the under 40 participants said that they would do everything possible to be financially secure compared with 76 percent for the older group. Seventy-six percent of the younger group emphasized the importance of being debt free compared with 63 percent for the 40+ group.
Friday, October 1, 2010
Principal Financial Exits Medical Market
The Principal Financial Group, Des Moines, Iowa, announced that it was exiting the insured and self-insured medical insurance business. As part of that exit, Principal has entered into an agreement with UnitedHealthcare to renew coverage for Principal customers as it transitions out of the business over the next 36 months.
The company says the departure is a strategic decision because the medical business has been declining in size for a number of years in comparison with the company’s retirement and asset management businesses. Sales will cease and the renewal process will begin immediately, according to Principal. The company says that of 1,500 employees in the medical insurance business, the jobs of 150 will be impacted. Those employees will be considered for other positions, Principal adds.
Larry Zimpleman, the company’s chairman, president and CEO, says the decision will allow Principal to better focus capital and to use resources in the asset accumulation and asset management businesses, both domestically and internationally.
The Principal estimates this action will negatively impact third quarter 2010 EPS operating results by $0.03-$0.04 and full-year 2010 EPS operating results by $0.18-$0.20 due to the exclusion of the business from operating earnings. However, the company expects to release between $100 million and $120 million of capital (which primarily reflects the capital allocated to the medical insurance business less a reduction in the diversification benefit that will result from the exit of this business) over the next 36 months as a result of this change.
Principal says that the decision was a business and strategic one and not related to current health insurance reform. “Our decision did not hinge on reform,” says Susan Houser, a Principal spokesperson. “As we indicated [in the announcement on Sept. 30,] this was predominantly a business strategy decision given 97% of our operating earnings come from our growth businesses (asset management and asset accumulation/retirement etc), while medical insurance represents less than 3% of our business. In addition to strategic fit going forward, we considered numerous additional factors (including the regulatory environment), but our strategy and ability to invest in our growing businesses was the real driver.”
Currently, state insurance regulators are working on the development of medical loss ratios under the new federal Patient Protection and Affordable Care Act. Medical loss ratios are percentages of premium that must be paid out as claims under the new law. The National Association of Insurance Commissioners, Kansas City, Mo., is working on MLRs to make sure that they comply with the new PPACA requirements.
State insurance commissioners said last week in a discussion with President Barack Obama and the administration, that there was concern that some companies would exit the market because of the new MLR requirements. The commissioners recommended a transition period. States including Iowa and Maine made formal requests in letters to the administration. Florida held a hearing to consider such a request. Iowa Insurance Commissioner and NAIC President-elect Susan Voss, noted that several companies had indicated that the new MLR requirements might make it necessary for them to leave the market.
Most recently, on a call of the NAIC’s Accident and Health Working Group, there was a discussion concerning how a small group is defined. The working group said that the law specifically states that small group is a group of insureds ranging from 2-50and that a group of 1 would need to be in the individual market, according to a strict reading of the law.
The company says the departure is a strategic decision because the medical business has been declining in size for a number of years in comparison with the company’s retirement and asset management businesses. Sales will cease and the renewal process will begin immediately, according to Principal. The company says that of 1,500 employees in the medical insurance business, the jobs of 150 will be impacted. Those employees will be considered for other positions, Principal adds.
Larry Zimpleman, the company’s chairman, president and CEO, says the decision will allow Principal to better focus capital and to use resources in the asset accumulation and asset management businesses, both domestically and internationally.
The Principal estimates this action will negatively impact third quarter 2010 EPS operating results by $0.03-$0.04 and full-year 2010 EPS operating results by $0.18-$0.20 due to the exclusion of the business from operating earnings. However, the company expects to release between $100 million and $120 million of capital (which primarily reflects the capital allocated to the medical insurance business less a reduction in the diversification benefit that will result from the exit of this business) over the next 36 months as a result of this change.
Principal says that the decision was a business and strategic one and not related to current health insurance reform. “Our decision did not hinge on reform,” says Susan Houser, a Principal spokesperson. “As we indicated [in the announcement on Sept. 30,] this was predominantly a business strategy decision given 97% of our operating earnings come from our growth businesses (asset management and asset accumulation/retirement etc), while medical insurance represents less than 3% of our business. In addition to strategic fit going forward, we considered numerous additional factors (including the regulatory environment), but our strategy and ability to invest in our growing businesses was the real driver.”
Currently, state insurance regulators are working on the development of medical loss ratios under the new federal Patient Protection and Affordable Care Act. Medical loss ratios are percentages of premium that must be paid out as claims under the new law. The National Association of Insurance Commissioners, Kansas City, Mo., is working on MLRs to make sure that they comply with the new PPACA requirements.
State insurance commissioners said last week in a discussion with President Barack Obama and the administration, that there was concern that some companies would exit the market because of the new MLR requirements. The commissioners recommended a transition period. States including Iowa and Maine made formal requests in letters to the administration. Florida held a hearing to consider such a request. Iowa Insurance Commissioner and NAIC President-elect Susan Voss, noted that several companies had indicated that the new MLR requirements might make it necessary for them to leave the market.
Most recently, on a call of the NAIC’s Accident and Health Working Group, there was a discussion concerning how a small group is defined. The working group said that the law specifically states that small group is a group of insureds ranging from 2-50and that a group of 1 would need to be in the individual market, according to a strict reading of the law.
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